As filed with the Securities and Exchange Commission on November 24, 1998
1933 Act File No. 2-38309
1940 Act File No. 811-2107
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 66 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 66
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(Check appropriate box or boxes.)
FIRST INVESTORS FUND FOR INCOME, INC.
(Exact name of Registrant as Specified in Charter)
95 Wall Street
New York, New York 10005
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 858-8000
Ms. Concetta Durso
Secretary and Vice President
First Investors Fund For Income, Inc.
95 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Copy to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
Approximate Date of Proposed Public Offering
--------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[x] on February __, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
FIRST INVESTORS FUND FOR INCOME, INC.
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the First Investors Fund For Income, Inc.
Combined Statement of Additional Information for the First Investors
Fund for Income, Inc., the First Investors High Yield Fund, Inc.,
the First Investors Government Fund, Inc., and the First Investors
Investment Grade Fund, a series of First Investors Series Fund
Part C of Form N-1A
Signature Page
Exhibits
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS FUND FOR INCOME, INC.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February _____, 1999
<PAGE>
CONTENTS
OVERVIEW OF THE FUND FOR INCOME
o What is the Fund For Income?
oo Objectives
oo Primary Investment Strategies
oo Primary Risks
o Who should consider buying the Fund For Income?
o How has the Fund For Income performed?
o What are the fees and expenses of the Fund For Income?
THE FUND FOR INCOME IN DETAIL
o What are the Fund For Income's objectives, principal investment strategies
and principal risks?
o Who manages the Fund For Income?
o How and when does the Fund For Income price its shares?
BUYING AND SELLING SHARES
o How do I buy shares?
o Which class of shares is best for me?
o How do I sell shares?
o Can I exchange my shares for the shares of other First Investors Funds?
ACCOUNT POLICIES
o What about dividends and capital gain distributions?
o What about taxes?
o How do I obtain a complete explanation of all account privileges and
policies?
FINANCIAL HIGHLIGHTS
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OVERVIEW OF THE FUND FOR INCOME
What is the Fund For Income?
Objectives The Fund primarily seeks high current income and secondarily
seeks capital appreciation.
Primary
Investment
Strategies The Fund primarily invests in a diversified portfolio of
high-yield, below-investment grade corporate bonds (commonly
known as "junk bonds"). These bonds provide a higher level of
income than investment grade bonds because they have a higher
risk of default. The Fund seeks to reduce the risk of a default
by selecting bonds through careful credit research and analysis.
The Fund seeks to reduce the impact of a default by diversifying
its investments among bonds of many different companies and
industries. The Fund seeks to achieve capital appreciation by
investing in high yield bonds with stable to improving credit
conditions that could appreciate in value.
Primary
Risks There are four primary risks of investing in the Fund. First, the
value of the Fund's shares could decline as a result of a
deterioration of the financial condition of an issuer of bonds
owned by the Fund or as a result of a default by the issuer. High
yield bonds carry higher risks of default than investment grade
bonds because the companies that issue them are not as strong
financially as companies with investment grade credit ratings.
Second, the value of the Fund's shares could decline if the
entire high yield bond market were to decline, even if none of
the Fund's bond holdings were at risk of a default. The high
yield market can experience sharp declines at times as the result
of a deterioration in the overall economy, declines in the stock
market, a change of investor tolerance for risk, or other
factors. Third, high yield bonds tend to be less liquid than
other bonds, which means that they are more difficult to sell,
particularly when there is a deterioration of the general economy
or the financial conditions of the companies that issue them.
Fourth, the value of the Fund's shares could decline as the
result of a rise in interest rates. While high yield bonds are
generally less interest rate sensitive than higher quality bonds,
their values generally will decline when interest rates rise.
Fluctuations in the prices of high yield bonds can be
substantial. Accordingly, the value of your investment in the
Fund will go up and down, which means that you could lose money.
Who should consider buying the Fund For Income?
The Fund For Income is most appropriately used to add
diversification to an investment portfolio. It may be appropriate
for you if you:
. Are seeking an investment that offers a high level of current
income and moderate growth potential,
. Are willing to accept a high degree of credit risk and market
volatility, and
. Have a long-term investment horizon and are able to ride out
market cycles.
You should keep in mind that the Fund for Income is not a
complete investment program. For most investors, a complete
program also should include stock and money market funds. Stocks
have historically outperformed other categories of investments
over long periods of time and are therefore considered an
important part of a diversified investment portfolio. There have
been extended periods, however, during which bonds and money
market instruments have outperformed stocks. By allocating your
assets among different types of funds, you can reduce the overall
3
<PAGE>
risk of your portfolio and benefit when stocks outperform other
asset classes. Of course, even a diversified investment program
could result in a loss.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
How has the Fund For Income performed?
The bar chart and table below show you how the Fund's performance has varied
from year to year and in comparison with a broad-based index. This information
gives you some indication of the risks of investing in the Fund.
The Fund has two classes of shares, Class A shares and Class B shares. The bar
chart shows changes in the performance of the Fund's Class A shares for each of
the last 10 calendar years. The performance of Class B shares differs from the
performance of Class A shares shown in the bar chart only to the extent that it
does not have the same expenses. The bar chart does not reflect sales charges
that you may pay upon purchase or redemption of Fund shares. If they were
included, the returns would be less than those shown.
[Bar Chart of Changes in Performance of Class A
Shares From 1989 to 1998, With the Following Plot Points:
1989 -8.05%
1990 -17.23%
1991 42.84%
1992 16.70%
1993 18.06%
1994 .58%
1995 18.54%
1996 13.40%
1997 12.62%
1998 -]
THE FUND'S RETURN FOR THE MOST RECENT QUARTER ENDED DECEMBER 31, 1998 WAS _____%
FOR CLASS A SHARES AND _____% FOR CLASS B SHARES. During the periods shown, the
highest quarterly return was [14.74%] (for the quarter ended [March 31, 1991])
and the lowest quarterly return was [-8.75%] (for the quarter ended [August 30,
1990]). THE FUND'S PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE FUND
WILL PERFORM IN THE FUTURE.
The table below shows how the average annual total returns for Class A shares
and Class B shares compare to those of the Credit Suisse First Boston High Yield
Index ("High Yield Index"). This table assumes that the maximum sales charge or
CDSC was paid. The High Yield Index is designed to measure the performance of
the high yield bond market. The High Yield Index does not take into account fees
and expenses that an investor would incur in holding the securities in the
Index. If it did so, the returns would be lower than those shown.
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Inception
Class B Shares
1 Year* 5 Years* 10 Years* (1/12/95)
Class A Shares 5.49% 11.06% 9.33% N/A
Class B Shares 7.95 N/A N/A 13.32%
High Yield Index 12.63 11.84 12.10 [ ]
*The annual returns are based upon calendar years.
What are the fees and expenses of the Fund For Income?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Class A Class B
Shares Shares
------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).......... 6.25% None
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price)................... None* 4%**
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total Fee Waiver
and Service Annual Fund And/or
Management (12b-1) Other Operating Expense Net
Fees (1) Fees (2) Expenses Expenses(3) Assumption Expenses
---------- ------------ -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares ...... 0.74% 0.30% 0.26% 1.30% [ ]% [ ]%
Class B Shares ...... 0.74 1.00 0.26 2.00 [ ]% [ ]%
</TABLE>
*A contingent deferred sales charge of 1.00% will be assessed on certain
redemptions of Class A shares that are purchased without a sales charge.
**4% in the first year; declining to 0% after the sixth year.
(1) For the fiscal year ended September 30, 1998, the Adviser waived Management
Fees in excess of ____% for the Fund. The Adviser has contractually agreed with
the Fund to waive management fees in excess of ___% for a period of twelve
months commencing on ___________.
(2) Because the Fund pays Rule 12b-1 fees, long-term shareholders could pay more
than the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
(3) The Fund has an expense offset arrangement that may reduce the Fund's
custodian fee based on the amount of cash maintained by the Fund with its
custodian. Any such fee reductions are not reflected under Total Annual Fund
Operating Expenses.
EXAMPLE
This example helps you to compare the costs of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that (1) you invest
$10,000 in the Fund for the time periods indicated; (2) your investment has a 5%
return each year; (3) the Fund's operating expenses for the one year period are
calculated net of any fees waived and/or expenses assumed and (4) the Fund's
operating expenses for the three year, five year and ten year periods do not
reflect fee waivers and/or expenses assumed.
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Although your actual costs may be higher or lower, under these assumptions your
costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
If you redeem your shares:
Class A shares $749 $1,011 $1,293 $2,095
Class B shares 603 927 1,278 2,147*
If you do not redeem your shares:
Class A shares $749 $1,011 $1,293 $2,095
Class B shares 203 627 1,078 2,147*
*Assumes conversion to Class A shares eight years after purchase.
THE FUND FOR INCOME IN DETAIL
What are the Fund For Income's objectives, principal investment strategies,
and risks?
OBJECTIVES: The Fund primarily seeks high current income and secondarily seeks
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily invests in a diversified
portfolio of high-yield, below-investment grade corporate bonds commonly known
as "junk bonds" (those rated below Baa by Moody's Investors Service, Inc. or
below BBB by Standard & Poor's Ratings Group). High yield bonds generally
provide higher income than investment grade bonds to compensate investors for
their higher risk of default (i.e., failure to make required interest or
principal payments). High-yield bond issuers include small or relatively new
companies lacking the history or capital to merit investment grade status,
former Blue Chip companies downgraded because of financial problems, companies
using debt rather than equity to fund capital investment or spending programs,
companies electing to borrow heavily to finance or avoid a takeover or buyout,
and firms with heavy debt loads. The Fund's portfolio may include zero coupon
bonds, pay in kind bonds and bonds of foreign companies or governments. The Fund
seeks to reduce the risk of a default by selecting bonds through careful credit
research and analysis. The Fund seeks to reduce the impact of a potential
default by diversifying its investments among bonds of many different companies
and industries. The Fund attempts to invest in bonds that have stable to
improving credit quality and potential for capital appreciation because of a
credit rating upgrade or an improvement in the outlook for a particular company,
industry or the economy as a whole.
Although the Fund will consider ratings assigned by ratings agencies in
selecting high yield bonds, it relies principally on its own research and
investment analysis. The Fund considers a variety of factors, including the
issuer's managerial strength, anticipated cash flow, debt maturity schedules,
borrowing requirements, interest or dividend coverage, asset coverage and
earnings prospects. The Fund will usually sell a bond when it shows
deteriorating fundamentals or falls short of the portfolio manager's
expectations. Information on the Fund's recent strategies and holdings can be
found in the most recent annual report (see back cover).
PRINCIPAL RISKS: Any investment carries with it some level of risk. In general,
the greater the potential reward of the investment, the greater the risk. Here
are some of the risks of owning the Fund:
CREDIT RISK: This is the risk that an issuer of bonds will be unable to pay
interest or principal when due. The prices of bonds are affected by the credit
quality of the issuer. High yield bonds are subject to greater credit risk than
higher quality bonds because the companies that issue them are not as
financially strong as companies with investment grade ratings. Changes in the
financial condition of an issuer, changes in general economic conditions, and
changes in specific economic conditions that affect a particular type of issuer
can impact the credit quality of an issuer. Such changes may weaken an issuer's
ability to make payments of principal or interest, or cause an issuer of bonds
to fail to make timely payments of interest or principal. Lower quality bonds
generally tend to be more sensitive to these changes than higher quality bonds.
6
<PAGE>
While credit ratings may be available to assist in evaluating an issuer's credit
quality, they may not accurately predict an issuer's ability to make timely
payments of principal and interest.
MARKET RISK: The entire junk bond market can experience sharp price swings due
to a variety of factors, including changes in economic forecasts, stock market
volatility, large sustained sales of junk bonds by major investors, high-profile
defaults, or changes in the market's psychology. This degree of volatility in
the high yield market is usually associated more with stocks than bonds. The
prices of high yield bonds held by the Fund could therefore decline, regardless
of the financial condition of the issuers of such bonds. Markets tend to run in
cycles with periods when prices generally go up, known as "bull" markets, and
periods when prices generally go down, referred to as "bear" markets.
LIQUIDITY: High yield bonds tend to be less liquid than higher quality bonds,
meaning that it may be difficult to sell high yield bonds at a reasonable price,
particularly if there is a deterioration in the economy or in the financial
prospects of their issuers. As a result, the prices of high yield bonds may be
subject to wide price fluctuations due to liquidity concerns.
INTEREST RATE RISK: The market value of a bond is affected by changes in
interest rates. When interest rates rise, the market value of a bond declines,
when interest rates decline, the market value of a bond increases. The price
volatility of a bond also depends on its maturity and duration. Generally, the
longer the maturity and duration of a bond, the greater its sensitivity to
interest rates. To compensate investors for this higher risk, bonds with longer
maturities and durations generally offer higher yields than bonds with shorter
maturities and durations.
FOREIGN SECURITIES: The Fund may invest in foreign securities. Foreign
investments involve additional risks, including currency fluctuations, political
instability, differences in financial reporting standards, and less stringent
regulation of securities markets.
YEAR 2000 RISKS: The values of securities owned by the Fund may be negatively
affected by Year 2000 problems. Many computer systems are not designed to
process correctly date-related information after January 1, 2000. The issuers of
securities held by the Fund may incur substantial costs in ensuring that
computer systems on which they rely are Year 2000 ready and may face business
and legal problems if these systems are not ready. If computer systems used by
exchanges, broker-dealers, and other market participants are not Year 2000
ready, valuing and trading securities could be difficult. These problems could
have a negative effect on the Fund's investments and returns.
OTHER RISKS: The performance of this Fund will not necessarily resemble that of
any other high yield bond fund that is managed by the Adviser, since each high
yield fund may invest in different securities, employ different investment
strategies, and have different cash flows.
ALTERNATIVE STRATEGIES: At times the Fund may judge that market, economic or
political conditions make pursuing the Fund's investment strategies inconsistent
with the best interests of its shareholders. The Fund then may temporarily use
alternative strategies that are mainly designed to limit the Fund's losses.
Who manages the Fund For Income?
First Investors Management Company, Inc. ("FIMCO") is the investment adviser to
the Fund. Its address is 95 Wall Street, New York, NY 10005. FIMCO has been
managing mutual funds since [1948]. It currently serves as investment adviser to
15 mutual funds or series of funds with total net assets of approximately $5
billion. FIMCO supervises all aspects of the Fund's operations and determines
the Fund's portfolio transactions. For the fiscal year ended September 30, 1998,
FIMCO received advisory fees of [0.75%] of the Fund's average daily net assets.
Nancy Jones serves as Portfolio Manager of the Fund. Ms. Jones also serves as
Portfolio Manager of certain other First Investors Funds. Ms. Jones joined FIMCO
in 1983 as a Director of Research in the High Yield Department.
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<PAGE>
In addition to the investment risks of the Year 2000 which are discussed above,
the ability of FIMCO and its affiliates to price the Fund's shares, process
purchase and redemption orders, and render other services could be adversely
affected if the computers or other systems on which they rely are not properly
programmed to operate after January 1, 2000. Additionally, because the services
provided by FIMCO and its affiliates depend on the interaction of their computer
systems with the computer systems of brokers, information services and other
parties, any failure on the part of such third party computer systems to deal
with the Year 2000 may have a negative effect on the services provided to the
Fund. FIMCO and its affiliates are taking steps that they believe are reasonably
designed to address the Year 2000 problem for computer and other systems used by
them and are obtaining assurances that comparable steps are being taken by the
Fund's other service providers. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Nor can the
Fund estimate the extent of any impact.
How and when does the Fund For Income price its shares?
The share price (which is called "net asset value" or "NAV" per share) for the
Fund is calculated once each day as of 4 p.m., Eastern Standard Time ("E.S.T."),
on each day the New York Stock Exchange ("NYSE") is open for regular trading. In
the event that the NYSE closes early, the share price will be determined as of
the time of the closing.
To calculate the NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The prices or NAVs of Class A shares and Class B shares will
generally differ because they have different expenses.
In valuing its assets, the Fund uses the market value of securities for which
market quotations or last sale prices are readily available. If there are no
readily available quotations or last sale prices for an investment or the
available quotations are considered to be unreliable, the securities will be
valued at their fair value as determined in good faith pursuant to procedures
adopted by the Board of Directors of the Fund.
BUYING AND SELLING SHARES
How do I buy shares?
You may buy shares of the Fund through a First Investors registered
representative or through a registered representative of an authorized
broker-dealer ("Representative"). Your Representative will help you complete and
submit an application. Your minimum initial investment must be at least $1,000.
However, we offer automatic investment plans that allow you to open a Fund
account with as little as $50. You also may open certain retirement plan
accounts with as little as $500 even without an automatic investment plan.
Subsequent investments may be made in any amount.
If we receive your application or order in our Woodbridge, N.J. offices in
correct form by 5 p.m., E.S.T., your transaction will be priced at that day's
NAV. If we receive it after 5 p.m., E.S.T., it will be priced at the next
business day's NAV. The procedures for processing transactions are explained in
more detail in our Shareholder Manual which is available upon request.
You can arrange to make systematic investments electronically from your bank
account or through payroll deduction. All the various ways you can buy shares
are explained in the Shareholder Manual. For further information on the
procedures for buying shares, please contact your Representative or call
Shareholder Services at 1-800-423-4026.
The Fund reserves the right to refuse any order to buy shares if the Fund
determines that doing so would be in the best interests of the Fund and its
shareholders.
8
<PAGE>
Which class of shares is best for me?
The Fund has two classes of shares, Class A and Class B. While each class
invests in the same portfolio of securities, the classes have separate sales
charge and expense structures. Because of the different expense structures, each
class of shares generally will have different NAVs and dividends.
The principal advantages of Class A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Class A shares. The principal advantage of
Class B shares is that all of your money is put to work from the outset.
Class A shares of the Fund are sold at the public offering price which includes
a front-end sales load. The sales charge declines with the size of your
purchase, as illustrated below.
Class A Shares
Your investment Sales Charge as a percentage of
-------------------------------
offering price net amount invested
Less than $25,000 6.25% 6.67%
$25,000-$49,999 5.75 6.10
$50,000-$99,999 5.50 5.82
$100,000-$249,999 4.50 4.71
$250,000-$499,999 3.50 3.63
$500,000-$999,999 2.50 2.56
$1,000,000 or more 0* 0*
*If you invest $1,000,000 or more in Class A shares, you will not pay a
front-end sales charge. However, if you make such an investment and then sell
your shares within 24 months of purchase, you will pay a contingent deferred
sales charge ("CDSC") of 1.00%.
Class B shares are sold at net asset value, without any initial sales charge.
However, you may pay a CDSC when you sell your shares. The CDSC declines the
longer you hold your shares, as illustrated below. Class B shares convert to
Class A shares after eight years.
Class B Shares
YEAR OF REDEMPTION CDSC as a Percentage of
Purchase Price or
NAV at Redemption
-----------------------
Within the 1st or 2nd year...... 4%
Within the 3rd or 4th year...... 3
In the 5th year................. 2
In the 6th year................. 1
Within the 7th year and 8th year 0
There is no CDSC on Class B shares which are acquired through reinvestment of
dividends or distributions. The CDSC is imposed on the lower of the original
purchase price or the net asset value of the shares being sold. For purposes of
determining the CDSC, all purchases made during a calendar month are counted as
having been made on the first day of that month at the average cost of all
purchases made during that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that carry no CDSC. If
there is an insufficient number of these shares to meet your request in full, we
will then sell those shares that have the lowest CDSC.
Sales charges and CDSCs may be reduced or waived under certain circumstances and
for certain groups. Consult your Representative or call us directly at
1-800-423-4026 for details.
9
<PAGE>
The Fund has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. Each class of
shares pays Rule 12b-1 fees for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual rates (based
on average daily net assets) of up to .30% on Class A shares and 1.00% on Class
B shares. This fee is paid monthly in arrears. Because these fees are paid out
of the Fund's assets on an on-going basis, the higher fees for Class B shares
will increase the cost of your investment and over time may cost you more than
paying the initial sales charge for Class A shares.
FOR ACTUAL PAST EXPENSES OF CLASS A AND CLASS B SHARES, SEE THE SECTION ENTITLED
"WHAT ARE THE FEES AND EXPENSES OF THE FUND?" IN THIS PROSPECTUS.
Because of the lower overall expenses on Class A shares, we recommend Class A
shares for purchases in excess of $250,000 and will only sell Class A shares to
you if you are investing in excess of $1,000,000. For purchases below $250,000,
the class that is best for you generally depends upon the amount you invest,
your time horizon, and your preference for paying the sales charge initially or
later. If you fail to tell us what Class of shares you want, we will purchase
Class A shares for you.
How do I sell shares?
You may redeem your Fund shares on any day the Fund is open for business by:
. Contacting your Representative who will place a redemption order for
you;
. Sending a written redemption request to Administrative Data
Management Corp., ("ADM") at 581 Main Street, Woodbridge, NJ
07095-1198;
. Telephoning the Special Services Department of ADM at 1-800-342-6221
(if you have elected to have telephone privileges); or
. Instructing us to make an electronic transfer to a predesignated bank
(if you have completed an application authorizing such transfers).
Your redemption request will be processed at the price next computed after we
receive the request in good order. For all requests, have your account number
available.
Payment of redemption proceeds generally will be made within 7 days. If you are
redeeming shares which you recently purchased by check, payment may be delayed
to verify that your check has cleared. This may take up to 15 days from the date
of your purchase. You may not redeem shares by telephone or Electronic Fund
Transfer unless you have owned the shares for at least 15 days.
If your account has a value of less than $500, the Fund may redeem all of your
shares without your consent. You will receive 60-days notice of the Fund's
intention to do this prior to the redemption. You may avoid this redemption by
purchasing additional Fund shares during this 60-day period to bring your
account balance to the required minimum. If you own Class B shares, you will not
be charged a CDSC on a low balance redemption. If you established your Fund
account under one of our automatic investment programs and discontinue payments
before you meet the $1,000 minimum, you will be subject to this redemption
policy.
The Fund reserves the right to make in-kind redemptions. This means that it
could respond to a redemption request by distributing shares of the Fund's
underlying investments rather than distributing cash.
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<PAGE>
Can I exchange my shares for the shares of other First Investors
Funds?
You may exchange shares of the Fund for shares of other First Investors Funds
without paying any additional sales charge. You can only exchange within the
same class of shares (i.e., Class A to Class A). Consult your Representative or
call ADM at 1-800-423-4026 for details.
The Fund reserves the right to reject any exchange request that in the opinion
of the Fund is part of a market timing strategy. The Fund is designed for
long-term investment purposes. It is not intended to provide a vehicle for
short-term market timing. In the event that an exchange is rejected, neither the
redemption nor the purchase side of the exchange will be effected.
ACCOUNT POLICIES
What about dividends and capital gain distributions?
To the extent that it has net investment income, the Fund will declare daily and
pay on a monthly basis dividends from net investment income. Any net realized
capital gains will be declared and distributed on an annual basis, usually after
the end of the Fund's fiscal year. The Fund may make an additional distribution
in any year if necessary to avoid a Federal excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on both classes of the Fund's shares are
calculated at the same time and in the same manner. Dividends on Class B shares
of the Fund are expected to be lower than those for its Class A shares because
of the higher distribution fees borne by the Class B shares. Dividends on each
class also might be affected differently by the allocation of other
class-specific expenses. In order to be eligible to receive a dividend or other
distribution, you must own Fund shares as of the close of business on the record
date of the distribution.
You may choose to reinvest all dividends and other distributions at NAV in
additional shares of the same class of the Fund or certain other First Investors
Funds, or receive all dividends and other distributions in cash. If you do not
select an option when you open your account, all dividends and other
distributions will be reinvested in additional shares of the Fund. If you do not
cash a distribution check and do not notify ADM to issue a new check within [ ]
months, the distribution will be reinvested in the Fund. If any correspondence
sent by the Fund is returned as "undeliverable," dividends and other
distributions automatically will be reinvested in the Fund. No interest will be
paid to you while a distribution remains uninvested.
A dividend or other distribution paid on a class of shares will only be paid in
additional shares of the distributing class if the total amount of the
distribution is under $5 or the Fund has received notice of your death (until
written alternate payment instructions and other necessary documents are
provided by your legal representative).
What about taxes?
Any dividends or capital gain distributions paid by the Fund are taxable to you
unless you hold your shares in an individual retirement account ("IRA"), 403(b)
account, or 401(k) account, or other tax-deferred account. Dividends (including
distributions of net short-term capital gains) are taxable to you as ordinary
income. Capital gain distributions (essentially, distributions of net long-term
capital gains) by the Fund are taxed to you as long-term capital gains,
regardless of how long you owned your Fund shares. You are taxed in the same
manner whether you receive your dividends and capital gain distributions in cash
or reinvest them in additional Fund shares. Your sale or exchange of Fund shares
may be considered a taxable event for you. Depending on the purchase price and
the sale price of the shares you sell or exchange, you may have a gain or a loss
on the transaction. You are responsible for any tax liabilities generated by
your transactions.
11
<PAGE>
How do I obtain a complete explanation of all account privileges
and policies?
The Fund offers a full range of special privileges, including special investment
programs for group retirement plans, systematic investing programs, automatic
payroll investment programs, telephone privileges, check writing privileges, and
expedited redemptions by wire order or Automated Clearing House transfer. The
full range of privileges, and related policies, are described in a special
Shareholder Manual, which you may obtain on request. For more information on the
full range of services available, please contact your Representative or contact
us directly at 1-800-423-4026.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by Tait, Weller & Baker, whose report, along with
the Fund's financial statements, are included in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Class A
----------------------------------------
Year Ended December 31 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Year .......... $4.29 $4.13 $3.81$ $4.17
Income from Investment Operations
Net investment income ................. .38 .39 .38 .37
Net realized and unrealized gain (loss)
on investments ........................ .14 .14 .30 (.35)
--- --- --- -----
Total from Investment Operations .52 .53 .68 .02
--- --- --- ---
Less Dividends from
Net Investment Income .................... .38 .37 .36 .38
------------------------------------------ --- --- --- ---
Capital surplus ..........................
Total distributions ................. .38 .37 .36 .38
--- --- --- ---
Net Asset Value, End of Year ................ $4.43 $4.29 $4.13 $3.81
===== ===== ===== =====
Total Return (%)+ ........................... 12.62 13.40 18.54 .58
- -----------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Year (in millions)........ $439 $432 $425 $401
Ratio to Average Net Assets: (%)
Expenses ................................. 1.15 1.16 1.18 1.22
Net investment income .................... 8.63 9.27 9.53 9.34
Portfolio Turnover Rate (%) ................. 45 30 33 39
+Calculated without sales charge
*For the period 1/12/95 (date Class B shares first offered) to 12/31/95
(a)Annualized
</TABLE>
13
<PAGE>
- -----------------------------------------------------
CLASS B
- -----------------------------------------------------
1998 1997 1996 1995*
- -----------------------------------------------------
$4.28 $4.13 $3.81
----- ----- -----
.34 .38 .31
.15 .12 .33
------ ------- -------
.49 .50 .64
------ ------- -------
.35 .35 .32
------- ------- -------
-- -- --
.35 .35 .32
------- ------- -------
$4.42 $4.28 $4.13
===== ===== =====
11.95 12.51 17.46
$6 $3 $2
1.85 1.86 1.92(a)
7.93 8.57 8.78(a)
45 30 33
14
<PAGE>
[FIRST INVESTORS LOGO]
FIRST INVESTORS FUND FOR INCOME, INC.
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated into this prospectus.
SHAREHOLDER MANUAL: The Shareholder Manual provides more detailed information
about the purchase, redemption and sale of Fund shares.
You can get free copies of reports, the SAI and the Shareholder Manual, request
other information and discuss your questions about the Fund by contacting your
Representative, or by contacting the Fund at:
Administrative Data Management Corp.
581 Main Street
Woodbridge, NJ 07095-1198
Telephone: 1-800-423-4026
You can review and copy information about the Fund for a fee (including the
Fund's reports, Shareholder Manual and SAI) at the Public Reference Room of the
Securities and Exchange Commission ("SEC") in Washington, D.C. You can also send
your request and a duplicating fee to the Public Reference Room of the SEC,
Washington, DC 20549-6009. You can obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. Text-only versions of Fund
documents can be viewed online or downloaded from the SEC's Internet website at
http://www.sec.gov.
(Investment Company Act File No:
First Investors Fund For Income, Inc. 811-2107)
<PAGE>
FIRST INVESTORS GOVERNMENT FUND, INC.
FIRST INVESTORS INVESTMENT GRADE FUND
A SERIES OF FIRST INVESTORS SERIES FUND
FIRST INVESTORS FUND FOR INCOME, INC.
FIRST INVESTORS HIGH YIELD FUND, INC.
95 Wall Street
New York, New York 10005
1-800-423-4026
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY __, 1999
This is a Statement of Additional Information ("SAI") for FIRST INVESTORS
GOVERNMENT FUND, INC. ("GOVERNMENT FUND"), FIRST INVESTORS INVESTMENT GRADE FUND
("INVESTMENT GRADE FUND"), A SERIES OF FIRST INVESTORS SERIES FUND ("SERIES
FUND"), FIRST INVESTORS FUND FOR INCOME, INC. ("INCOME FUND"), and FIRST
INVESTORS HIGH YIELD FUND, INC. ("HIGH YIELD Fund"). Each fund is an open-end
diversified management investment company. Series Fund offers five separate
series, one of which INVESTMENT GRADE FUND, is described in this SAI, while HIGH
YIELD FUND, INCOME FUND and GOVERNMENT FUND each offers one series. GOVERNMENT
FUND, INVESTMENT GRADE FUND, INCOME FUND, AND HIGH YIELD FUND are referred to
herein collectively as "Funds."
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectus dated February __, 1999, which may be obtained free of cost
from the Funds at the address or telephone number noted above. Information
regarding the purchase, redemption, sale and exchange of your Fund shares is
contained in the Shareholder Manual, a separate section of the SAI that is a
distinct document and may also be obtained free of charge by contacting your
Fund at the address or telephone number noted above.
TABLE OF CONTENTS
PAGE
Investment Strategies and Risks......................................
Investment Policies..................................................
Futures and Options Strategies......................................
Investment Restrictions..............................................
Portfolio Turnover...................................................
Directors/Trustees and Officers......................................
Management...........................................................
Underwriter..........................................................
Distribution Plans...................................................
Determination of Net Asset Value.....................................
Allocation of Portfolio Brokerage....................................
Purchase, Redemption and Exchange of Shares..........................
Taxes................................................................
Performance Information..............................................
General Information..................................................
Appendix A...........................................................
Appendix B...........................................................
Appendix C...........................................................
Financial Statements.................................................
Shareholder Manual: A Guide to your First Investors Mutual Fund Account
<PAGE>
INVESTMENT STRATEGIES AND RISKS
GOVERNMENT FUND
GOVERNMENT FUND seeks to achieve a significant level of current income
which is consistent with security and liquidity of principal by investing, under
normal market conditions, at least 80% of its assets in U.S. Government
Obligations (including mortgage-backed securities). The Fund has no fixed policy
with respect to the duration of U.S. Government Obligations it purchases.
Securities issued or guaranteed as to payment of principal and interest (but not
market value) by the U.S. Government include a variety of Treasury securities,
which differ only in their interest rates, maturities and times of issuance.
Although the payment of interest and principal on a portfolio security may be
guaranteed by the U.S. Government or one of its agencies or instrumentalities,
shares of GOVERNMENT FUND are not insured or guaranteed by the U.S. Government
or any agency or instrumentality. The net asset value of shares of the Fund
generally will fluctuate in response to interest rate levels. When interest
rates rise, prices of fixed income securities generally decline; when interest
rates decline, prices of fixed income securities generally rise. See "U.S.
Government Obligations" and "Debt Securities," below.
GOVERNMENT FUND may invest in mortgage-backed securities, including
Government National Mortgage Association ("GNMA") certificates, Federal National
Mortgage Association ("FNMA") certificates and Federal Home Loan Mortgage
Corporation ("FHLMC") certificates. The Fund also may invest in securities
issued or guaranteed by other U.S. Government agencies or instrumentalities,
including: the Federal Farm Credit System (obligations supported only by the
credit of the issuer, but do not give the issuer the right to borrow from the
U.S. Treasury, and are not guaranteed by the U.S. Government); the Federal Home
Loan Bank (obligations supported by the right of the issuer to borrow from the
U.S. Treasury to meet its obligations but are not guaranteed by the U.S.
Government); the Tennessee Valley Authority and the U.S. Postal Service (the
obligations of each supported by the right of the issuer to borrow from the U.S.
Treasury to meet it obligations); and the Farmers Home Administration and the
Export-Import Bank (obligations backed by the full faith and credit of the
United States). The Fund may invest in collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies, authorities or instrumentalities. See
"Mortgage-Backed Securities," below.
The Fund may, from time to time or for temporary defensive purposes,
invest up to 20% of its assets in prime commercial paper, certificates of
deposit of domestic branches of U.S. banks, bankers' acceptances, repurchase
agreements (applicable to U.S. Government Obligations), participation interests,
insured certificates of deposit and certificates representing accrual on U.S.
Treasury securities. The Fund also may purchase securities on a when-issued
basis and make loans of portfolio securities. The Fund may borrow money on a
temporary or emergency basis in amounts not exceeding 5% of its total assets.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
INVESTMENT GRADE FUND
INVESTMENT GRADE FUND seeks to generate a maximum level of income
consistent with investment in investment grade debt securities. The Fund seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets in debt securities of U.S. issuers that are rated in the
four highest rating categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or in unrated securities that are
deemed to be of comparable quality ("investment grade securities") by the Fund's
Investment Adviser, First Investors Management Company, Inc. ("FIMCO" or
"Adviser"). The Fund may invest up to 35% of its total assets in U.S. Government
Obligations (including mortgage-backed securities), dividend-paying common and
preferred stocks, obligations convertible into common stocks, repurchase
agreements, debt securities rated below investment grade and money market
instruments. The Fund may invest up to 5% of its net assets in corporate or
1
<PAGE>
government debt securities of foreign issuers which are U.S. dollar denominated
and traded in U.S. markets. The Fund also may borrow money for temporary or
emergency purposes in amounts not exceeding 5% of its total assets. The Fund may
make loans of portfolios securities and invest up to 5% of its net assets in
securities issued on a when-issued or delayed delivery basis. The Fund may
invest up to 5% of its net assets in zero coupon or pay-in-kind securities.
Although up to 100% of the Fund's total assets can be invested in debt
securities rated at least Baa by Moody's or at least BBB by S&P, or unrated debt
securities deemed to be of comparable quality by the Adviser, no more than 5% of
the Fund's net assets may be invested in debt securities rated lower than Baa by
Moody's or BBB by S&P (including securities that have been downgraded), or if
unrated, deemed to be of comparable quality by the Adviser, or in any equity
securities of any issuer if a majority of the debt securities of such issuer are
rated lower than Baa by Moody's or BBB by S&P. The Adviser continually monitors
the investments in the Fund's portfolio and carefully evaluates on a
case-by-case basis whether to dispose of or retain a debt security which has
been downgraded to a rating lower than investment grade. However, if downgrading
results in the Fund holding more than 5% of its net assets in securities rated
lower than Baa by Moody's or BBB by S&P, the Adviser will sell sufficient
securities to stay within this limit. See "Debt Securities" and Appendix A for a
description of corporate bond ratings.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
HIGH YIELD FUND AND INCOME FUND
The HIGH YIELD FUND primarily seeks high current income and secondarily
seeks capital appreciation by investing, under normal market conditions, at
least 65% of its total assets in high risk, high yield securities, commonly
referred to as "junk bonds" ("High Yield Securities"). Similarly, the INCOME
FUND primarily seeks to earn a high level of current income and, to the extent
possible, in view of that objective, secondarily seeks growth of capital by
emphasizing, under normal market conditions, investments in High Yield
Securities.
High Yield Securities include the following instruments: fixed, variable
or floating rate debt obligations (including bonds, debentures and notes) which
are rated below Baa by Moody's or below BBB by S&P, or are unrated and deemed to
be of comparable quality by the Fund's Adviser; preferred stocks and
dividend-paying common stocks that have yields comparable to those of high
yielding debt securities; any of the foregoing securities of companies that are
financially troubled, in default or undergoing bankruptcy or reorganization
("Deep Discount Securities"); and any securities convertible into any of the
foregoing. See "High Yield Securities" and "Deep Discount Securities," below.
Each Fund may invest up to 5% of its total assets in debt securities
issued by foreign governments and companies located outside the United States
and denominated in U.S. or foreign currency. Each Fund also may borrow money for
temporary or emergency purposes in amounts not exceeding 5% of its total assets,
invest up to 10% of its net assets in securities issued on a when-issued or
delayed delivery basis, invest up to 15% of its net assets in restricted
securities (which may not be publicly marketable), and invest in zero coupon and
pay-in-kind securities. In addition, HIGH YIELD FUND may make loans of portfolio
securities.
HIGH YIELD FUND may invest up to 35% of its total assets, and INCOME FUND
may invest without limitation, in the following instruments: common and
preferred stocks, other than those considered to be High Yield Securities; debt
obligations of all types (including bonds, debentures and notes) rated A or
better by Moody's or S&P; securities issued by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Obligations"); warrants and
money market instruments consisting of prime commercial paper, certificates of
deposit of domestic branches of U.S. banks, bankers' acceptances and repurchase
agreements.
2
<PAGE>
In any period of market weakness or of uncertain market or economic
conditions, each Fund may establish a temporary defensive position to preserve
capital by having all or part of its assets invested in short-term fixed income
securities or retained in cash or cash equivalents, including bank certificates
of deposit, bankers' acceptances, U.S. Government Obligations and commercial
paper issued by domestic corporations.
The medium- to lower-rated, and certain of the unrated, securities in
which each Fund invests tend to offer higher yields than higher-rated securities
with the same maturities because the historical financial condition of the
issuers of such securities may not be as strong as that of other issuers. Debt
obligations rated lower than A by Moody's or S&P tend to have speculative
characteristics or are speculative, and generally involve more risk of loss of
principal and income than higher-rated securities. Also, their yields and market
values tend to fluctuate more than those of higher quality securities. The
greater risks and fluctuations in yield and value occur because investors
generally perceive issuers of lower-rated and unrated securities to be less
creditworthy. These risks cannot be eliminated, but may be reduced by
diversifying holdings to minimize the portfolio impact of any single investment.
In addition, fluctuations in market value do not affect the cash income from the
securities, but are reflected in the computation of a Fund's net asset value.
When interest rates rise, the net asset value of the Funds tends to decrease.
When interest rates decline, the net asset value of the Funds tends to increase.
Variable or floating rate debt obligations in which the Funds may invest
periodically adjust their interest rates to reflect changing economic
conditions. Thus, changing economic conditions specified by the terms of the
security would serve to change the interest rate and the return offered to the
investor. This reduces the effect of changing market conditions on the
security's underlying market value.
A High Yield Security may itself be convertible into or exchangeable for
equity securities, or may carry with it the right to acquire equity securities
evidenced by warrants attached to the security or acquired as part of a unit
with the security. Although each Fund invests primarily in High Yield
Securities, securities received upon conversion or exercise of warrants and
securities remaining upon the break-up of units or detachment of warrants may be
retained to permit orderly disposition, to establish a long-term holding period
for Federal income tax purposes, or to seek capital appreciation.
Because of the greater number of investment considerations involved in
investing in High Yield Securities, the achievement of either Fund's investment
objectives depends more on the Adviser's research abilities than would be the
case if a Fund were investing primarily in securities in the higher rated
categories. Because medium- to lower-rated securities generally involve greater
risks of loss of income and principal than higher-rated securities, investors
should consider carefully the relative risks associated with investments in
securities that carry medium to lower ratings or are unrated. See "Types of
Securities and Their Risks-High Yield Securities" and Appendix A for a
description of corporate bond ratings.
Each Fund seeks to achieve its secondary objective to the extent
consistent with its primary objective. There can be no assurance that either
Fund will be able to achieve its investment objectives. Each Fund's net asset
value fluctuates based mainly upon changes in the value of its portfolio
securities.
Additional restrictions are set forth in the "Investment Restrictions"
section of this SAI.
3
<PAGE>
INVESTMENT POLICIES
BANKERS' ACCEPTANCES. Each Fund may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an asset
or it may be sold in the secondary market at the going rate of interest for a
specific maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.
CERTIFICATES OF ACCRUAL ON U.S. TREASURY SECURITIES. GOVERNMENT FUND may
purchase certificates, not issued by the U.S. Treasury, which evidence ownership
of future interest, principal or interest and principal payments on obligations
issued by the U.S. Treasury. The actual U.S. Treasury securities will be held by
a custodian on behalf of the certificate holder. These certificates are
purchased with original issue discount and are subject to greater fluctuations
in market value, based upon changes in market interest rates, than
income-producing securities.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government which insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current Federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
CONVERTIBLE SECURITIES. HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE
FUND may invest in convertible securities. While no securities investment is
without some risk, investments in convertible securities generally entail less
risk than the issuer's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. The Adviser will
decide to invest based upon a fundamental analysis of the long-term
attractiveness of the issuer and the underlying common stock, the evaluation of
the relative attractiveness of the current price of the underlying common stock
and the judgment of the value of the convertible security relative to the common
stock at current prices.
DEBT SECURITIES. Each Fund may invest in debt securities. The market value
of debt securities is influenced primarily by changes in the level of interest
rates. Generally, as interest rates rise, the market value of debt securities
decreases. Conversely, as interest rates fall, the market value of debt
securities increases. Factors which could result in a rise in interest rates,
and a decrease in the market value of debt securities, include an increase in
inflation or inflation expectations, an increase in the rate of U.S. economic
growth, an expansion in the Federal budget deficit or an increase in the price
of commodities such as oil. In addition, the market value of debt securities is
influenced by perceptions of the credit risks associated with such securities.
Credit risk is the risk that adverse changes in economic conditions can affect
an issuer's ability to pay principal and interest. See Appendix A for a
description of corporate bond ratings.
DEEP DISCOUNT SECURITIES. HIGH YIELD FUND AND INCOME FUND may each invest
up to 15% of its total assets in securities of companies that are financially
troubled, in default or undergoing bankruptcy or reorganization. Such securities
are usually available at a deep discount from the face value of the instrument.
A Fund will invest in Deep Discount Securities when the Adviser believes that
there exist factors that are likely to restore the company to a healthy
financial condition. Such factors include a restructuring of debt, management
changes, existence of adequate assets or other unusual circumstances. Debt
instruments purchased at deep discounts may pay very high effective yields. In
4
<PAGE>
addition, if the financial condition of the issuer improves, the underlying
value of the security may increase, resulting in a capital gain. If the company
defaults on its obligations or remains in default, or if the plan of
reorganization is insufficient for debtholders, the Deep Discount Securities may
stop paying interest and lose value or become worthless. The Adviser will
attempt to balance the benefits of investing in Deep Discount Securities with
their risks. While a diversified portfolio may reduce the overall impact of a
Deep Discount Security that is in default or loses its value, the risk cannot be
eliminated. See "High Yield Securities," below.
FOREIGN GOVERNMENT OBLIGATIONS. INVESTMENT GRADE FUND, HIGH YIELD FUND AND
INCOME FUND may invest in foreign government obligations, which generally
consist of obligations supported by national, state or provincial governments or
similar political subdivisions. Investments in foreign government debt
obligations involve special risks. The issuer of the debt may be unable or
unwilling to pay interest or repay principal when due in accordance with the
terms of such debt, and a Fund may have limited legal resources in the event of
default. Political conditions, especially a sovereign entity's willingness to
meet the terms of its debt obligations, are of considerable significance.
FOREIGN SECURITIES-RISK FACTORS. INVESTMENT GRADE FUND, HIGH YIELD FUND
AND INCOME FUND may sell a security denominated in a foreign currency and retain
the proceeds in that foreign currency to use at a future date (to purchase other
securities denominated in that currency) or the Fund may buy foreign currency
outright to purchase securities denominated in that foreign currency at a future
date. Investing in foreign securities involves more risk than investing in
securities of U.S. companies. Each Fund currently does not intend to hedge its
foreign investments against the risk of foreign currency fluctuations.
Accordingly, changes in the value of foreign currencies can significantly affect
a Fund's share price, irrespective of developments relating to the issuers of
securities held by the Funds. In addition, a Fund will be affected by changes in
exchange control regulations and fluctuations in the relative rates of exchange
between the currencies of different nations, as well as by economic and
political developments. Other risks involved in foreign securities include the
following: there may be less publicly available information about foreign
companies comparable to the reports and ratings that are published about
companies in the United States; foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies; some foreign stock markets
have substantially less volume than U.S. markets, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies; there may be less government supervision and regulation of foreign
stock exchanges, brokers and listed companies than exist in the United States;
and there may be the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
assets of a Fund held in foreign countries.
HIGH YIELD SECURITIES. HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE
FUND may invest in High Yield Securities. High Yield Securities are subject to
greater risks than those that are present with investments in higher grade debt
securities, as discussed below.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. Debt obligations rated
lower than Baa by Moody's or BBB by S&P, commonly referred to as "junk bonds,"
are speculative and generally involve a higher risk or loss of principal and
income than higher-rated debt securities. The prices of High Yield Securities
tend to be less sensitive to interest rate changes than higher-rated
investments, but may be more sensitive to adverse economic changes or individual
corporate developments. Periods of economic uncertainty and changes generally
result in increased volatility in the market prices and yields of High Yield
Securities and thus in a Fund's net asset value. A significant economic downturn
or a substantial period of rising interest rates could severely affect the
market for High Yield Securities. In these circumstances, highly leveraged
companies might have greater difficulty in making principal and interest
payments, meeting projected business goals, and obtaining additional financing.
Thus, there could be a higher incidence of default. This would affect the value
5
<PAGE>
of such securities and thus a Fund's net asset value. Further, if the issuer of
a security owned by a Fund defaults, that Fund might incur additional expenses
to seek recovery.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including High Yield Securities, tends to decrease; when interest
rates fall, the value of fixed rate debt obligations tends to increase. If an
issuer of a High Yield Security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which Fund expenses could be allocated and in a reduced rate of return for that
Fund. While it is impossible to protect entirely against this risk,
diversification of a Fund's portfolio and the Adviser's careful analysis of
prospective portfolio securities helps to minimize the impact of a decrease in
value of a particular security or group of securities in a Fund's portfolio.
THE HIGH YIELD SECURITIES MARKET. The market for below investment
grade bonds expanded rapidly in recent years and its growth paralleled a long
economic expansion. At times in the past, the prices of many lower-rated debt
securities have declined substantially, reflecting an expectation that many
issuers of such securities might experience financial difficulties. As a result,
the yields on lower-rated debt securities rose dramatically. However, such
higher yields did not reflect the value of the income streams that holders of
such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
in the below investment grade market will not reoccur. The market for below
investment grade bonds generally is thinner and less active than that for higher
quality bonds, which may limit a Fund's ability to sell such securities at
reasonable prices in response to changes in the economy or the financial
markets. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of lower rated
securities, especially in a thinly traded market.
CREDIT RATINGS. The credit ratings issued by credit rating services
may not fully reflect the true risks of an investment. For example, credit
ratings typically evaluate the safety of principal and interest payments, not
market value risk, of High Yield Securities. Also, credit rating agencies may
fail to change on a timely basis a credit rating to reflect changes in economic
or company conditions that affect a security's market value. Each Fund which is
permitted to invest in High Yield Securities may invest in securities rated as
low as D by S&P or C by Moody's or, if unrated, deemed to be of comparable
quality by the Adviser. Debt obligations with these ratings either have
defaulted or are in great danger of defaulting and are considered to be highly
speculative. See "Deep Discount Securities." The Adviser continually monitors
the investments in a Fund's portfolio and carefully evaluates whether to dispose
of or retain High Yield Securities whose credit ratings have changed. See
Appendix A for a description of corporate bond ratings.
LIQUIDITY AND VALUATION. Lower-rated bonds are typically traded
among a smaller number of broker-dealers than in a broad secondary market.
Purchasers of High Yield Securities tend to be institutions, rather than
individuals, which is a factor that further limits the secondary market. To the
extent that no established retail secondary market exists, many High Yield
Securities may not be as liquid as higher-grade bonds. A less active and thinner
market for High Yield Securities than that available for higher quality
securities may result in more volatile valuations of a Fund's holdings and more
difficulty in executing trades at favorable prices during unsettled market
conditions.
The ability of a Fund to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. During such periods, there may be less reliable objective information
available and thus the responsibility of each Fund's Board of Directors to value
High Yield Securities becomes more difficult, with judgment playing a greater
role. Further, adverse publicity about the economy or a particular issuer may
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adversely affect the public's perception of the value, and thus liquidity, of a
High Yield Security, whether or not such perceptions are based on a fundamental
analysis.
MONEY MARKET INSTRUMENTS. Investments in commercial paper are limited to
obligations rated Prime-l by Moody's or A-l by S&P. Commercial paper includes
notes, drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. Investments in certificates of deposit will be made only
with domestic institutions with assets in excess of $500 million. See Appendix A
for a description of commercial paper ratings.
PREFERRED STOCK. A preferred stock is a security which has a blend of the
characteristics of a bond and common stock. It can offer the higher yield of a
bond and has priority over common stock in equity ownership, but does not have
the seniority of a bond and, unlike common stock, its participation in the
issuer's growth may be limited. Preferred stock has preference over common stock
in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
LOANS OF PORTFOLIO SECURITIES. While they have no present intention of
doing so in the coming year, HIGH YIELD FUND, INVESTMENT GRADE FUND AND
GOVERNMENT FUND may loan securities to qualified broker-dealers or other
institutional investors provided: the borrower pledges to the Fund and agrees to
maintain at all times with the Fund collateral equal to not less than 100% of
the value of the securities loaned (plus accrued interest or dividend, if any);
the loan is terminable at will by the Fund; the Fund pays only reasonable
custodian fees in connection with the loan; and the Adviser monitors the
creditworthiness of the borrower throughout the life of the loan. Such loans may
be terminated by the Fund at any time and the Fund may vote the proxies if a
material event affecting the investment is to occur. The market risk applicable
to any security loaned remains a risk of the Fund. The borrower must add to the
collateral whenever the market value of the securities rises above the level of
such collateral. The Fund could incur a loss if the borrower should fail
financially at a time when the value of the loaned securities is greater than
the collateral.
MORTGAGE-BACKED SECURITIES. GOVERNMENT FUND AND INVESTMENT GRADE FUND may
invest in mortgage-backed securities, including those representing an undivided
ownership interest in a pool of mortgage loans. Each of the certificates
described below is characterized by monthly payments to the security holder,
reflecting the monthly payments made by the mortgagees of the underlying
mortgage loans. The payments to the security holders (such as the Fund), like
the payments on the underlying loans, generally represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as twenty to thirty years, the borrowers can, and typically do, repay
them sooner. Thus, the security holders frequently receive prepayments of
principal, in addition to the principal which is part of the regular monthly
payments. A borrower is more likely to prepay a mortgage which bears a
relatively high rate of interest. Thus, in times of declining interest rates,
some higher yielding mortgages might be repaid resulting in larger cash payments
to the Fund, and the Fund will be forced to accept lower interest rates when
that cash is used to purchase additional securities.
Interest rate fluctuations may significantly alter the average maturity of
mortgage-backed securities by changing the rates at which homeowners refinance
mortgages. When interest rates rise, prepayments often drop, which should
increase the average maturity of the mortgage-backed security. Conversely, when
interest rates fall, prepayments often rise, which should decrease the average
maturity of the mortgage-backed security.
GNMA CERTIFICATES. GNMA Certificates are mortgage-backed securities,
which evidence an undivided interest in a pool of mortgage loans. In the case of
GNMA Certificates, principal is paid back monthly by the borrower over the term
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of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Fund purchases are the "modified pass-through" type. "Modified
pass-through" GNMA Certificates entitle the holder to receive a share of all
interest and principal payments paid and owed on the mortgage pool net of fees
paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities backed by a
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers' Home Administration ("FMHA"), or guaranteed by the Department of
Veteran Affairs ("VA"). The GNMA guarantee is backed by the full faith and
credit of the U.S. Government. GNMA also is empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional mortgage-backed
securities of the types described above. Interest received by the Fund will,
however, be distributed to shareholders. Foreclosures impose no risk to
principal investment because of the GNMA guarantee. As prepayment rates of the
individual mortgage pools vary widely, it is not possible to predict accurately
the average life of a particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest on GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the Certificates by the amount
of the fees paid to GNMA and the issuer. The coupon rate by itself, however,
does not indicate the yield which will be earned on GNMA Certificates. First,
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
FHLMC SECURITIES. FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool.
FNMA SECURITIES. FNMA issues guaranteed mortgage pass-through
certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates
in that each FNMA Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest on FNMA Certificates and the full return of principal.
Risk of foreclosure of the underlying mortgages is greater with
FHLMC and FNMA securities because, unlike GNMA Certificates, FHLMC and FNMA
securities are not guaranteed by the full faith and credit of the U.S.
Government.
PARTICIPATION INTERESTS. Participation interests which may be held by
GOVERNMENT Fund are pro rata interests in securities held either by banks which
are members of the Federal Reserve System or securities dealers who are members
of a national securities exchange or are market makers in government securities,
which are represented by an agreement in writing between the Fund and the entity
in whose name the security is issued, rather than possession by the Fund. The
Fund will purchase participation interests only in securities otherwise
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permitted to be purchased by the Fund, and only when they are evidenced by
deposit, safekeeping receipts, or book-entry transfer, indicating the creation
of a security interest in favor of the Fund in the underlying security. However,
the issuer of the participation interests to the Fund will agree in writing,
among other things: to promptly remit all payments of principal, interest and
premium, if any, to the Fund once received by the issuer; to repurchase the
participation interest upon seven days' notice; and to otherwise service the
investment physically held by the issuer, a portion of which has been sold to
the Fund.
REPURCHASE AGREEMENTS. While each Fund has no present intention of doing
so in the coming year, it may invest in repurchase agreements. A repurchase
agreement essentially is a short-term collateralized loan. The lender (a Fund)
agrees to purchase a security from a borrower (typically a broker-dealer) at a
specified price. The borrower simultaneously agrees to repurchase that same
security at a higher price on a future date (which typically is the next
business day). The difference between the purchase price and the repurchase
price effectively constitutes the payment of interest. In a standard repurchase
agreement, the securities which serve as collateral are transferred to a Fund's
custodian bank. In a "tri-party" repurchase agreement, these securities would be
held by a different bank for the benefit of the Fund as buyer and the
broker-dealer as seller. In a "quad-party" repurchase agreement, the Fund's
custodian bank also is made a party to the agreement. Each Fund may enter into
repurchase agreements with banks which are members of the Federal Reserve System
or securities dealers who are members of a national securities exchange or are
market makers in government securities. The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will a Fund invest in repurchase agreements with more than one year in time to
maturity. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of one year from the effective date of the
repurchase agreement. Each Fund will always receive, as collateral, securities
whose market value, including accrued interest, which will at all times be at
least equal to 100% of the dollar amount invested by the Fund in each agreement,
and the Fund will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of the custodian. If the
seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines, and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy or
similar proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Neither
Fund will enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 15% of the Fund's net assets would be
invested in such repurchase agreements and other illiquid investments.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS. None of the Funds may
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. This policy includes foreign issuers'
unlisted securities with a limited trading market and repurchase agreements
maturing in more than seven days. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended ("1933 Act"), which the Board of Directors or Trustees, as
applicable (hereinafter "Directors" or "Board"), or the Adviser has determined
under Board-approved guidelines are liquid.
Restricted securities which are illiquid may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 15% limit. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
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In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
SEPARATED OR DIVIDED U.S. TREASURY SECURITIES. GOVERNMENT FUND may invest
in separated or divided U.S. Treasury securities. These instruments represent a
single interest, or principal, payment on a U.S. Treasury bond which has been
separated from all the other interest payments as well as the bond itself. When
the Fund purchases such an instrument, it purchases the right to receive a
single payment of a set sum at a known date in the future. The interest rate on
such an instrument is determined by the price the Fund pays for the instrument
when it purchases the instrument at a discount under what the instrument
entitles the Fund to receive when the instrument matures. The amount of the
discount the Fund will receive will depend upon the length of time to maturity
of the separated U.S. Treasury security and prevailing market interest rates
when the separated U.S. Treasury security is purchased. Separated U.S. Treasury
securities can be considered a zero coupon investment because no payment is made
to the Fund until maturity. The market values of these securities are much more
susceptible to change in market interest rates than income-producing securities.
These securities are purchased with original issue discount and such discount is
includable as gross income to a Fund shareholder over the life of the security.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in U.S. Government
Obligations. U.S. Government Obligations include: (1) U.S. Treasury obligations
(which differ only in their interest rates, maturities and times of issuance),
and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are backed by the full faith and credit of the United
States (such as securities issued by the Federal Housing Administration,
Government National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services Administration and the
Maritime Administration and certain securities issued by the Farmers Home
Administration and the Small Business Administration). The range of maturities
of U.S. Government Obligations is usually three months to thirty years.
WARRANTS. HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE FUND may
purchase warrants, which are instruments that permit a Fund to acquire, by
subscription, the capital stock of a corporation at a set price, regardless of
the market price for such stock. Warrants may be either perpetual or of limited
duration. There is greater risk that warrants might drop in value at a faster
rate than the underlying stock.
WHEN-ISSUED SECURITIES. Each Fund many invest in securities issued on a
when-issued or delayed delivery basis at the time the purchase is made. A Fund
generally would not pay for such securities or start earning interest on them
until they are issued or received. However, when a Fund purchases debt
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obligations on a when-issued basis, it assumes the risks of ownership, including
the risk of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by a Fund on a
when-issued basis may result in such Fund incurring a loss or missing an
opportunity to make an alternative investment. When a Fund enters into a
commitment to purchase securities on a when-issued basis, it establishes a
separate account on its books and records or with its custodian consisting of
cash or liquid high-grade debt securities equal to the amount of the Fund's
commitment, which are valued at their fair market value. If on any day the
market value of this segregated account falls below the value of the Fund's
commitment, the Fund will be required to deposit additional cash or qualified
securities into the account until the value of the account is equal to the value
of the Fund's commitment. When the securities to be purchased are issued, the
Fund will pay for the securities from available cash, the sale of securities in
the segregated account, sales of other securities and, if necessary, from the
sale of the when-issued securities themselves although this is not ordinarily
expected. Securities purchased on a when-issued basis are subject to the risk
that yields available in the market, when delivery takes place, may be higher
than the rate to be received on the securities a Fund is committed to purchase.
Sale of securities in the segregated account or sale of the when-issued
securities may cause the realization of a capital gain or loss.
ZERO COUPON AND PAY-IN-KIND SECURITIES. INVESTMENT GRADE FUND AND
GOVERNMENT FUND may each invest in zero coupon and pay-in-kind securities. Zero
coupon securities are debt obligations that do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. They are issued and traded at a
discount from their face amount or par value, which discount varies depending on
the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer.
Pay-in-kind securities are those that pay interest through the issuance of
additional securities. The market prices of zero coupon and pay-in-kind
securities generally are more volatile than the prices of securities that pay
interest periodically and in cash and are likely to respond to changes in
interest rates to a greater degree than do other types of debt securities having
similar maturities and credit quality. Original issue discount earned each year
on zero coupon securities and the "interest" on pay-in-kind securities must be
accounted for by the Fund that holds the securities for purposes of determining
the amount it must distribute that year to continue to qualify for tax treatment
as a regulated investment company. Thus, a Fund may be required to distribute as
a dividend an amount that is greater than the total amount of cash it actually
receives. See "Taxes." These distributions must be made from a Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
Each Fund will not be able to purchase additional income-producing securities
with cash used to make such distributions, and its current income ultimately
could be reduced as a result.
FUTURES AND OPTIONS STRATEGIES
Although they do not intend to engage in such strategies in the coming
year, HIGH YIELD FUND may engage in certain futures strategies to hedge its
investment portfolio and INVESTMENT GRADE FUND may buy and sell interest rate
futures contracts and buy and sell call and put options thereon traded on a U.S.
exchange or board of trade, and may also enter into closing transactions with
respect to such options to terminate an existing position. Certain special
characteristics of and risks associated with using hedging instruments are
discussed below. In addition to the investment guidelines adopted by the Funds'
Directors to govern its investments in hedging instruments, use of these
instruments is subject to the applicable regulations of the Securities and
Exchange Commission ("SEC"), the Commodities Futures Trading Commission ("CFTC")
and the several futures exchanges upon which futures contracts are traded.
Participation in the futures markets involves investment risks and
transaction costs to which the Fund would not be subject absent the use of these
strategies. If the Adviser's prediction of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
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the Fund may leave the Fund in a worse position than if such strategies were not
used. The Fund might not employ any of the strategies described below, and there
can be no assurance that any strategy will succeed. The use of these strategies
involve certain special risks, including (1) dependence on the Adviser's ability
to predict correctly movements in the direction of interest rates and securities
prices; (2) imperfect correlation between the price of futures contracts and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; and (4) the possible absence of a liquid secondary market
for any particular instrument at any time.
COVER FOR HEDGING STRATEGIES. In the event that the Funds engage in
hedging, they will not use leverage in their hedging strategies. In the case of
each transaction entered into as a hedge, the Funds will hold securities or
futures positions whose values are expected to offset ("cover") its obligations
thereunder. The Funds will not enter into a hedging strategy that exposes the
Funds to an obligation to another party unless it owns either (1) an offsetting
("covered") position in securities or futures contracts, or (2) cash and liquid
securities with a value sufficient at all times to cover its potential
obligations. The Funds will comply with guidelines established by the SEC with
respect to coverage of hedging strategies by mutual funds and, if required, will
set aside cash and liquid securities in a segregated account with its custodian
in the prescribed amount. Securities or futures positions used for cover and
assets held in a segregated account cannot be sold or closed out while the
hedging strategy is outstanding unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or segregation involving
a large percentage of each Fund's assets could impede portfolio management or
the Fund's ability to meet redemption requests or other current obligations.
FUTURES GUIDELINES. In view of the risks involved in using futures
strategies described above, each Fund's Board may adopt non-fundamental
investment guidelines to govern the Fund's use of such investments that may be
modified by the Board without shareholder vote. In the event that the Fund
enters into futures contracts or options thereon other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish these positions (excluding the in-the-money
amount for options that are in-the-money at the time of purchase) will not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and losses on any contracts into which the Fund was
entered. This policy does not limit the Fund's assets at risk to 5%.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES TRADING. No price is paid
upon entering into futures contracts. Instead, upon entering into a futures
contract, the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker through which the transaction is
effected an amount of cash, U.S. Government securities or other liquid,
high-grade debt instruments generally equal to 10% or less of the contract
value. This amount is known as "initial margin." Initial margin on futures
contracts is in the nature of a performance bond or good-faith deposit that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing to finance the futures
transactions, but rather represents a daily settlement of the Fund's obligation
to or from a clearing organization. The Fund is also obligated to make initial
and variation margin payments when it writes options on futures contracts.
Holders and writers of futures positions can enter into offsetting closing
transactions, similar to closing transactions on options on securities, by
selling or purchasing, respectively, a futures position with the same terms as
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the position held or written. Positions in futures contracts thereon may be
closed only on an exchange or board of trade providing a secondary market for
such futures or options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract may vary either up or down
from the previous day's settlement price. Once the daily limit has been reached
in a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses because prices could move to
the daily limit for several consecutive trading days with little or no trading
and thereby prevent prompt liquidation of unfavorable positions. In such event,
it may not be possible for the Fund to close a position and, in the event of
adverse price movements the Fund would have to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the contracts
can be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
Successful use by the Fund of futures contracts will depend upon the
Adviser's ability to predict movements in the direction of the overall interest
rate markets, which requires different skills and techniques than predicting
changes in the prices of individual securities. Moreover, futures contracts
relate not to the current price level of the underlying instrument but to the
anticipated levels at some point in the future. There is, in addition, the risk
that the movements in the price of the futures contract will not correlate with
the movements in prices of the securities being hedged. In addition, if the Fund
has insufficient cash, it may have to sell assets from its portfolio to meet
daily variation margin requirements. Any such sale of assets may or may not be
made at prices that reflect the rising market. Consequently, the Fund may need
to sell assets at a time when such sales are disadvantageous to the Fund. If the
price of the futures contract moves more than the price of the underlying
securities, the Fund will experience either a loss or a gain on the futures
contract that may or may not be completely offset by movements in the price of
the securities that are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between price movements in the futures position and
the securities being hedged, movements in the prices of futures contracts may
not correlate perfectly with movements in the prices of the hedged securities
because of price distortions in the futures market. As a result, a correct
forecast of general market trends may not result in successful hedging through
the use of futures contracts over the short term.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts.
Although the Fund intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be a liquid secondary market, there is no
assurance that such a market will exist for any particular contract at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, the Fund would continue
to be required to make variation margin payments.
Each Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions; however, each Fund also may save on commissions by using
futures as a hedge rather than buying or selling individual securities in
anticipation or as a result of market movements.
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INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund. As provided in the Investment Company Act of 1940, as
amended ("1940 Act"), a "vote of a majority of the outstanding voting securities
of the Fund" means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of the Fund or (2) 67% or more of the shares present at a
meeting, if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. Except with respect to borrowing, changes in
values of a particular Fund's assets will not cause a violation of the following
investment restrictions so long as percentage restrictions are observed by such
Fund at the time it purchases any security.
HIGH YIELD FUND will not:
(1) Borrow money, except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets.
(2) Engage in "short sales" in excess of 10% of the Fund's total assets.
(3) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraphs (1) and (2) above and for margin to secure its obligations under
interest rate futures contracts, provided the Fund maintains asset coverage of
at least 300% for pledged assets.
(4) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Board of Directors may, on the request of
broker-dealers or other institutional investors which they deem qualified,
authorize the Fund to loan securities to cover the borrower's short position;
provided, however, the borrower pledges to the Fund and agrees to maintain at
all times with the Fund cash collateral equal to not less than 100% of the value
of the securities loaned, the loan is terminable at will by the Fund, the Fund
receives interest on the loan as well as any distributions upon the securities
loaned, the Fund retains voting rights associated with the securities, the Fund
pays only reasonable custodian fees in connection with the loan, and the Adviser
monitors the creditworthiness of the borrower throughout the life of the loan;
provided further, that such loans will not be made if the value of all
repurchase agreements with more than seven days to maturity, and other illiquid
assets is greater than an amount equal to 15% of the Fund's net assets.
(5) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(6) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(7) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.
(8) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the Act and are readily marketable and may
invest in interest rate futures contracts and options thereon (provided the
margin required does not violate the investment restrictions pertaining to
pledging assets).
14
<PAGE>
(9) Invest in companies for the purpose of exercising control or
management.
(10) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(11) Purchase any securities on margin (however, the Fund's engaging in
"hedging transactions" and the margins required thereon shall not be considered
a violation of this provision).
(12) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer or if all such officers and Directors together own
more than 5% of the securities of such issuer.
(13) Invest 25% or more of the value of its total assets in a particular
industry at any one time.
(14) Invest more than 5% of the value of its net assets in warrants, with
no more than 2% in warrants not listed on either the New York or American Stock
Exchange.
(15) Purchase or sell portfolio securities from or to the Adviser or any
Director or officer thereof or of the Fund, as principals.
(16) Invest more than 15% of the value of its total assets, at the time of
purchase, in deep discount securities of companies that are financially
troubled, in default or in bankruptcy or reorganization.
(17) Issue senior securities.
(18) Invest any of its assets in interests in oil, gas or other mineral
exploration or development programs, or in puts, calls, straddles or any
combination thereof.
(19) Invest more than 10% of its net assets in when-issued securities at
the time such purchase is made.
The Fund has adopted the following non-fundamental investment restriction
which may be changed without shareholder approval. This investment restriction
provides that the Fund will not:
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
INCOME FUND will not:
(1) Borrow money except from banks and only for temporary or emergency
purposes and then in amounts not in excess of 5% of its total assets taken at
cost or value, whichever is the lesser.
(2) Make loans to other persons except that the Board of Directors may, on
the request of broker-dealers or other institutional investors that it deems
qualified, authorize the Fund to lend securities for the purpose of covering
short positions of the borrower, but only when the borrower pledges cash
15
<PAGE>
collateral to the Fund and agrees to maintain such collateral so that it amounts
at all times to at least 100% of the value of the securities. Such security
loans will not be made if as a result the aggregate of such loans exceeds 10% of
the value of the Fund's total assets. The Fund may terminate such loans at any
time and vote the proxies if a material event affecting the investment is about
to occur. The market risk applicable to any security loaned remains a risk of
the Fund. The borrower must add to collateral whenever the market value of the
securities rises above the level of such collateral. The primary objective of
such loaning function is to supplement the Fund's income through investment of
the cash collateral in short-term interest-bearing obligations. The purchase of
a portion of an issue of publicly distributed debt securities is not considered
the making of a loan.
(3) With respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
(4) Invest more than 5% of the value of its total assets in securities of
issuers, including the operations of predecessors, that have been in business
for less than three years.
(5) Invest 25% or more of the value of its total assets in a particular
industry at one time.
(6) Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under Federal securities laws.
(7) Purchase or sell real estate or commodities or commodity contracts.
However, the Fund may purchase interests in real estate investment trusts whose
securities are registered under the 1933 Act and are readily marketable.
(8) Invest in companies for the purpose of exercising control or
management.
(9) Invest in securities of other investment companies, except in
connection with a merger of another investment company.
(10) Purchase any securities on margin or sell any securities short.
(11) Purchase or retain securities of any issuer if any officer or
Director of the Fund or the Adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer and together own more than 5% of the securities of
such issuer.
(12) Purchase or sell portfolio securities from or to the Adviser or any
Director or officer thereof or of the Fund, as principals.
(13) Issue senior securities.
The Fund has adopted the following non-fundamental investment
restrictions, which may be changed without shareholder approval. These
investment restrictions provide that the Fund will not:
(1) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the 1933 Act, or any other
16
<PAGE>
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
(2) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
fundamental investment restriction (1) above, provided the Fund maintains asset
coverage of at least 300% for all such borrowings.
GOVERNMENT FUND will not:
(1) Borrow money, except as a temporary or emergency measure in an amount
not to exceed 5% of the value of its assets.
(2) Pledge assets, except that the Fund may pledge its assets to secure
borrowings made in accordance with paragraph (1) above, provided the Fund
maintains asset coverage of at least 300% for pledged assets.
(3) Make loans, except by purchase of debt obligations and through
repurchase agreements. However, the Fund's Board of Directors may, on the
request of broker-dealers or other institutional investors which they deem
qualified, authorize the Fund to loan securities to cover the borrower's short
position; provided, however, the borrower pledges to the Fund and agrees to
maintain at all times with the Fund cash collateral equal to not less than 100%
of the value of the securities loaned, the loan is terminable at will by the
Fund, the Fund receives interest on the loan as well as any distributions upon
the securities loaned, the Fund retains voting rights associated with the
securities, the Fund pays only reasonable custodian fees in connection with the
loan, and the Adviser monitors the creditworthiness of the borrower throughout
the life of the loan; provided further, that such loans will not be made if the
value of all loans, repurchase agreements with more then seven days to maturity,
and other illiquid assets is greater than an amount equal to 15% of the Fund's
net assets.
(4) Purchase, with respect to only 75% of the Fund's assets, the
securities of any issuer (other than U.S. Government Obligations (as defined in
the Prospectus)) if, as a result thereof, (a) more than 5% of the Fund's total
assets (taken at current value) would be invested in the securities of such
issuer, or (b) the Fund would hold more than 10% of any class of securities
(including any class of voting securities) of such issuer (for this purpose, all
debt obligations of an issuer maturing in less than one year are treated as a
single class of securities).
(5) Purchase the securities of an issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the Fund's total assets to be
invested in securities of issuers which, including predecessors, have a record
of less than three years' continuous operation.
(6) Purchase securities on margin; except that the Fund may obtain such
credits as may be necessary for the clearance of purchases and sales of
securities. (The deposit or payment by the Fund of initial or variation margin
in connection with interest rate futures contracts or related options
transactions is not considered the purchase of a security on margin.)
(7) Write put or call options; except that the Fund may write options with
respect to U.S. Government Obligations (as defined in the Prospectus) and
interest rate futures contracts. Notwithstanding the foregoing, a
non-fundamental investment restriction, adopted by the Fund's Board of
Directors, prohibits the Fund from engaging in any option transactions.
(8) Make short sales of securities.
(9) Issue senior securities.
17
<PAGE>
(10) Purchase the securities of other investment trusts, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
(11) Underwrite securities issued by other persons except to the extent
that, in connection with this disposition of its portfolio investments, it may
be deemed to be an underwriter under federal securities laws.
(12) Buy or sell real estate, (unless acquired as a result of ownership of
securities) or interests in oil, gas or mineral exploration; provided, however,
the Fund may invest in securities secured by real estate or interests in real
estate.
(13) Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell interest rate futures contracts and related options.
The Fund has adopted the following non-fundamental investment restriction,
which may be changed without shareholder approval. This restriction provides
that the Fund will not:
Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities, including repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
any securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Directors, or the
Fund's investment adviser acting pursuant to authority delegated by the
Directors, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the 1933 Act, or any other
applicable rule, and therefore that such securities are not subject to the
foregoing limitation.
INVESTMENT GRADE FUND will not:
(1) Make short sales of securities "against the box" in excess of 10% of
the Fund's total assets.
(2) Issue senior securities, as defined in the 1940 Act, or borrow money,
except that the Fund may borrow money from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current
value) of its total assets (not including the amount borrowed).
(3) Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (1) as to 75% of the Fund's
total assets (taken at current value), more than 5% of such assets would then be
invested in securities of a single issuer, or (2) 25% or more of the Fund's
total assets (taken at current value) would be invested in a single industry.
(4) Purchase more than 10% of the outstanding voting securities of any one
issuer or more than 10% of any class of securities of one issuer (all debt and
all preferred stock of an issuer are each considered a single class for this
purpose).
(5) Pledge, mortgage or hypothecate any of its assets, except that the
Fund may pledge its assets to secure borrowings made in accordance with
paragraph (2) above, provided the Fund maintains asset coverage of at least 300%
for all such borrowings.
(6) Purchase or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities which are
secured by real estate, securities of companies which invest or deal in real
estate and interests in real estate investment trusts. However, this restriction
will not preclude bona fide hedging transactions, including the purchase and
sale of futures contracts and related options.
18
<PAGE>
(7) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
(8) Make investments for the purpose of exercising control or management.
(9) Purchase any securities on margin (although the Fund may obtain such
short-term credit as may be necessary for the purchases and sales of its
portfolio securities).
(10) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies, (b) through
the lending of its portfolio securities, or (c) to the extent a repurchase
agreement is deemed a loan.
(11) Purchase or sell portfolio securities from or to the Adviser or any
director, officer or Trustee thereof or of Series Fund, as principals.
(12) Invest in any securities of any issuer if, to the knowledge of Series
Fund, any officer, director or Trustee of Series Fund or of the Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, directors or Trustees who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
The following investment restriction is not fundamental and may be changed
without shareholder approval. The investment restriction provides that the Fund
will not:
Invest more than 15% of its assets in repurchase agreements maturing in
more than seven days or in other illiquid securities, including securities that
are illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions as to resale. Securities that have legal or contractual
restrictions as to resale but have a readily available market are not deemed
illiquid for purposes of this limitation; the Adviser will monitor the liquidity
of such restricted securities under the supervision of the Board of Trustees.
PORTFOLIO TURNOVER
Although each Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Adviser, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in a Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to high transaction costs and may result
in a greater number of taxable transactions. See "Allocation of Portfolio
Brokerage." For the fiscal years ended December 31, 1997 and September 30, 1998,
HIGH YIELD FUND'S portfolio turnover rate was 46% and __%, respectively, INCOME
FUND'S portfolio turnover rate was 45% and __%, respectively, GOVERNMENT FUND'S
portfolio turnover rate was 134% and ____%, and INVESTMENT GRADE'S portfolio
turnover rate was 34% and ______%.
19
<PAGE>
DIRECTORS/TRUSTEES AND OFFICERS
Each Fund's Board of Directors, as part of its overall management
responsibility, oversees various organizations responsible for that Fund's
day-to-day management. The following table lists the Directors and executive
officers of Government Fund, Investment Grade Fund, Income Fund, and/or High
Yield Fund, their age, business address and principal occupations during the
past five years. Unless otherwise noted, an individual's business address is 95
Wall Street, New York, New York 10005.
GLENN O. HEAD*+ (73), President and Director. Chairman of the Board and
Director, Administrative Data Management Corp. ("ADM"), FIMCO, Executive
Investors Management Company, Inc. ("EIMCO"), First Investors Corporation
("FIC"), Executive Investors Corporation ("EIC") and First Investors
Consolidated Corporation ("FICC").
JAMES J. COY (84), Emeritus Director, 90 Buell Lane, East Hampton, NY 11937.
Retired; formerly Senior Vice President, James Talcott, Inc. (financial
institution).
KATHRYN S. HEAD*+ (42), Director, 581 Main Street, Woodbridge, NJ 07095.
President and Director, FICC, ADM and FIMCO; Vice President and Director, FIC
and EIC; President EIMCO; Chairman, President and Director, First Financial
Savings Bank, S.L.A.
LARRY R. LAVOIE* (51) Director. Assistant Secretary, ADM, EIC, EIMCO, FICC, and
FIMCO; Secretary and General Counsel, FIC.
REX R. REED** (76), Director, 259 Governors Drive, Kiawah Island, SC 29455.
Retired; formerly Senior Vice President, American Telephone & Telegraph Company.
HERBERT RUBINSTEIN** (77), Director, 695 Charolais Circle, Edwards, CO
81632-1136. Retired; formerly President, Belvac International Industries, Ltd.
and President, Central Dental Supply.
NANCY SCHAENEN** (67), Director, 56 Midwood Terrace, Madison, NJ 07940. Trustee,
Drew University and DePauw University.
JAMES M. SRYGLEY** (66), Director, 33 Hampton Road, Chatham, NJ 07982.
Principal, Hampton Properties, Inc. (property investment company).
JOHN T. SULLIVAN* (66), Director and Chairman of the Board; Director, FIMCO,
FIC, FICC and ADM; Of Counsel, Hawkins, Delafield & Wood, Attorneys.
ROBERT F. WENTWORTH** (69), Director, RR1, Box 2554, Upland Downs Road,
Manchester Center, VT 05255. Retired; formerly financial and planning executive
with American Telephone & Telegraph Company.
JOSEPH I. BENEDEK (41), Treasurer and Principal Accounting Officer, 581 Main
Street, Woodbridge, NJ 07095. Treasurer, FIC, FIMCO, EIMCO and EIC; Comptroller
and Treasurer, FICC.
CONCETTA DURSO (63), Vice President and Secretary. Vice President, FIMCO, EIMCO
and ADM; Assistant Vice President and Assistant Secretary, FIC and EIC.
NANCY W. JONES (54), Vice President, INCOME FUND. Vice President, First
Investors Asset Management Company, Inc. and First Investors Series Fund;
Portfolio Manager, FIMCO.
GEORGE V. GANTER (46), Vice President, HIGH YIELD FUND. Vice President, First
Investors Asset Management Company, Inc., First Investors Special Bond Fund,
Inc., and Executive Investors Trust; Portfolio Manager, FIMCO.
20
<PAGE>
CLARK D. WAGNER (39), Vice President. Vice President, First Investors
Multi-State Insured Tax Free Fund, Executive Investors Trust, First Investors
New York Insured Tax Free Fund, Inc. and First Investors Government Fund, Inc.;
Chief Investment Officer, FIMCO.
- ---------------------------------
* These Directors may be deemed to be "interested persons," as defined in the
1940 Act.
** These Directors are members of the Board's Audit Committee.
+ Mr. Glenn O. Head and Ms. Kathryn S. Head are father and daughter.
The Directors and officers, as a group, owned less than 1% of either Class
A or Class B shares of each Fund.
All of the officers and Directors, except for Ms. Jones, Mr. Ganter and
Mr. Wagner, hold identical or similar positions with the other registered
investment companies in the First Investors Family of Funds. Mr. Head is also an
officer and/or Director of First Investors Asset Management Company, Inc., First
Investors Credit Funding Corporation, First Investors Leverage Corporation,
First Investors Realty Company, Inc., First Investors Resources, Inc., N.A.K.
Realty Corporation, Real Property Development Corporation, Route 33 Realty
Corporation, First Investors Life Insurance Company, First Financial Savings
Bank, S.L.A., First Investors Credit Corporation and School Financial Management
Services, Inc. Ms. Head is also an officer and/or Director of First Investors
Life Insurance Company, First Investors Credit Corporation, School Financial
Management Services, Inc., First Investors Credit Funding Corporation, N.A.K.
Realty Corporation, Real Property Development Corporation, First Investors
Leverage Corporation and Route 33 Realty Corporation.
The following table lists compensation paid to the Directors of each Fund
for the fiscal year ended September 30, 1998.*
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate
Compensation Aggregate Compensation Compensation
From Compensation From From
High Yield From Government Investment
Director Fund** Income Fund** Fund** Grade Fund**
- -------- ------ ------------- ------ ------------
<S> <C> <C> <C> <C>
James J. Coy***
Roger L. Grayson****
Glenn O. Head
Kathryn S. Head
Larry R. Lavoie+
Rex R. Reed
Herbert Rubinstein
James M. Srygley
John T. Sullivan
Robert F. Wentworth
Nancy Schaenen
</TABLE>
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation From
Benefits Accrued as Part Estimated Annual First Investors Family
of Fund Benefits Upon of Funds Paid to
Director Expenses Retirement Director
- -------- ------------------------ ---------------- -----------------------
<S> <C> <C> <C>
James J. Coy*** $-0- $-0- $
Roger L. Grayson**** -0- -0- -0-
Glenn O. Head -0- -0- -0-
Kathryn S. Head -0- -0- -0-
21
<PAGE>
Larry R. Lavoie+
Rex R. Reed -0- -0-
Herbert Rubinstein -0- -0-
James M. Srygley -0- -0-
John T. Sullivan -0- -0- -0-
Robert F. Wentworth -0- -0-
Nancy Schaenen -0- -0-
</TABLE>
- ---------------------------------
* Fiscal year 1998 consisted of nine calendar months, January through September
1998.
** Compensation to officers and interested Directors of the Funds is paid by the
Adviser.
*** On March 27, 1997, Mr. Coy resigned as a Director of the Funds. Mr. Coy
currently serves as an emeritus Director.
****On August 20, 1998, Mr. Grayson resigned as a Director of the Funds.
+ On September 17, 1998, Mr. Lavoie was elected by the Board of Directors to
serve as Director.
MANAGEMENT
Investment advisory services to each Fund are provided by First Investors
Management Company, Inc. pursuant to separate Investment Advisory Agreements
(each, an "Advisory Agreement") dated June 13, 1994. Each Advisory Agreement was
approved by the Board of the applicable Fund, including a majority of the
Directors who are not parties to such Fund's Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party ("Independent
Directors"), in person at a meeting called for such purpose and by a majority of
the public shareholders of the applicable Fund.
Pursuant to each Advisory Agreement, FIMCO shall supervise and manage each
Fund's investments, determine each Fund's portfolio transactions and supervise
all aspects of each Fund's operations, subject to review by the applicable
Fund's Directors. Each Advisory Agreement also provides that FIMCO shall provide
the applicable Fund with certain executive, administrative and clerical
personnel, office facilities and supplies, conduct the business and details of
the operation of such Fund and assume certain expenses thereof, other than
obligations or liabilities of such Fund. Each Advisory Agreement may be
terminated at any time without penalty by the applicable Fund's Directors or by
a majority of the outstanding voting securities of such Fund, or by FIMCO, in
each instance on not less than 60 days' written notice, and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act). Each
Advisory Agreement also provides that it will continue in effect, with respect
to the applicable Fund, for a period of over two years only if such continuance
is approved annually either by such Fund's Directors or by a majority of the
outstanding voting securities of such Fund, and, in either case, by a vote of a
majority of such Fund's Independent Directors voting in person at a meeting
called for the purpose of voting on such approval.
Under each Advisory Agreement, the applicable Fund is obligated to pay the
Adviser an annual fee, paid monthly, according to the following schedules:
HIGH YIELD FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $200 million..................................................... 1.00%
In excess of $200 million up to $500 million........................... 0.75
In excess of $500 million up to $750 million........................... 0.72
In excess of $750 million up to $1.0 billion........................... 0.69
Over $1.0 billion...................................................... 0.66
22
<PAGE>
INCOME FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $250 million..................................................... 0.75%
In excess of $250 million up to $500 million........................... 0.72
In excess of $500 million up to $750 million........................... 0.69
Over $750 million...................................................... 0.66
GOVERNMENT FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $200 million.................................................... 1.00%
In excess of $200 million up to $500 million.......................... 0.75
In excess of $500 million up to $750 million.......................... 0.72
In excess of $750 million up to $1.0 billion.......................... 0.69
Over $1.0 billion..................................................... 0.66
INVESTMENT GRADE FUND
Annual
Average Daily Net Assets Rate
- ------------------------ ------
Up to $300 million................................................. 0.75%
In excess of $300 million up to $500 million....................... 0.72
In excess of $500 million up to $750 million....................... 0.69
Over $750 million.................................................. 0.66
For the fiscal years ended December 31, 1996 and 1997 and September 30,
1998, HIGH YIELD FUND paid the Adviser $1,647,509, $1,674,251 and _________,
respectively, in advisory fees. For the same periods, the Adviser voluntarily
waived $290,139, $400,000 and ___________, respectively, in advisory fees. For
the fiscal years ended December 31, 1996 and 1997 and September 30, 1998, INCOME
FUND paid the Adviser $3,153,822, $3,217,285 and __________, respectively, in
advisory fees. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, GOVERNMENT FUND paid the Adviser $1,008,288, $1,241,821 and
___________, respectively, in advisory fees. For these same time periods, the
Adviser voluntarily waived $489,874, $532,208 and ________, respectively, in
advisory fees. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, INVESTMENT GRADE paid the Adviser $319,601, $307,123 and
$____________, respectively, in advisory fees. For the same periods, the Adviser
voluntarily waived $49,170, $47,250, and $_________, respectively, in advisory
fees. In addition, for the same periods the Adviser voluntarily assumed expenses
in the amount of $103,287, $105,581, and $_________, respectively.
Each Fund bears all expenses of its operations other than those assumed by
the Adviser or Underwriter under the terms of its advisory or underwriting
agreements. Fund expenses include, but are not limited to: the advisory fee;
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of communicating to existing shareholders, including
preparing, printing and mailing prospectuses and shareholder reports to such
shareholders; and proxy and shareholder meeting expenses.
The Adviser has an Investment Committee composed of Dennis T. Fitzpatrick,
George V. Ganter, Richard Guinnessey, David Hanover, Glenn O. Head, Kathryn S.
Head, Nancy W. Jones, Michael O'Keefe, Patricia D. Poitra, Clark D. Wagner, and
Matthew Wright. The Committee usually meets weekly to discuss the composition of
the portfolio of each Fund and to review additions to and deletions from the
portfolios.
23
<PAGE>
UNDERWRITER
Each Fund has entered into an Underwriting Agreement ("Underwriting
Agreement") with First Investors Corporation ("Underwriter" or "FIC") which
requires the Underwriter to use its best efforts to sell shares of the Funds.
Each Underwriting Agreement was approved by the applicable Fund's Board,
including a majority of the Independent Directors. Each Underwriting Agreement
provides that it will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the applicable Fund's
Board or by a vote of a majority of the outstanding voting securities of such
Fund, and in either case by the vote of a majority of such Fund's Independent
Directors, voting in person at a meeting called for the purpose of voting on
such approval. Each Underwriting Agreement will terminate automatically in the
event of its assignment.
For the fiscal years ended December 31, 1996 and 1997 and September 30,
1998, FIC received underwriting commissions with respect to HIGH YIELD FUND of
$499,411, $466,862 and $__________, respectively. For the same periods, FIC
reallowed an additional $284,181, $133,969 and $_________, respectively, to
unaffiliated dealers. For the fiscal years ended December 31, 1996 and 1997 and
September 30, 1998, FIC received underwriting commissions with respect to INCOME
FUND of $339,449, $472,941 and $__________, respectively. For the same periods,
FIC reallowed an additional $15,512, $60,576 and $______________, respectively,
to unaffiliated dealers. For the fiscal years ended December 31, 1996 and 1997
and September 30, 1998, FIC received underwriting commissions with respect to
GOVERNMENT FUND of $279,408, $176,381 and $____________, respectively. For the
same periods, FIC reallowed an additional $7,092, $8,095 and $___________,
respectively, to unaffiliated dealers. For the fiscal years ended December 31,
1996 and 1997 and September 30, 1998, FIC received underwriting commissions with
respect to INVESTMENT GRADE FUND of $349,473, $223,846 and $__________. For the
same periods, FIC reallowed an additional $2,060, $1 and $_________,
respectively, to unaffiliated dealers.
DISTRIBUTION PLANS
As stated in the Funds' Prospectus, pursuant to a separate plan of
distribution for each class of shares adopted by each Fund pursuant to Rule
12b-1 under the 1940 Act ("Class A Plan" and "Class B Plan" and, collectively,
"Plans"), each Fund may reimburse or compensate, as applicable, the Underwriter
for certain expenses incurred in the distribution of that Fund's shares and the
servicing or maintenance of existing Fund shareholder accounts.
Each Plan was approved by the applicable Fund's Board, including a
majority of the Independent Directors, and by a majority of the outstanding
voting securities of the relevant class of such Fund. Each Plan will continue in
effect from year to year as long as its continuance is approved annually be
either the applicable Fund's Board or by a vote of a majority of the outstanding
voting securities of the relevant class of shares of such Fund. In either case,
to continue, each Plan must be approved by the vote of a majority of the
Independent Directors of the applicable Fund. Each Fund's Board reviews
quarterly and annually a written report provided by the Treasurer of the amounts
expended under the applicable Plan and the purposes for which such expenditures
were made. While each Plan is in effect, the selection and nomination of the
applicable Fund's Independent Directors will be committed to the discretion of
such Independent Directors then in office.
24
<PAGE>
Each Plan can be terminated at any time by a vote of a majority of the
applicable Fund's Independent Directors or by a vote of a majority of the
outstanding voting securities of the relevant class of shares of such Fund. Any
change to any Plan that would materially increase the costs to that class of
shares of a Fund may not be instituted without the approval of the outstanding
voting securities of that class of shares of such Fund as well as any class of
shares that converts into that class. Such changes also require approval by a
majority of the applicable Fund's Independent Directors.
In adopting each Plan, the Board of each Fund considered all relevant
information and determined that there is a reasonable likelihood that each Plan
will benefit each Fund and their class of shareholders. The Boards believe that
amounts spent pursuant to each Plan have assisted each Fund in providing ongoing
servicing to shareholders, in competing with other providers of financial
services and in promoting sales, thereby increasing the net assets of each Fund.
In reporting amounts expended under the Plans to the Directors, in the
event that the expenses are not related solely to one class, FIMCO will allocate
expenses attributable to the sale of each class of a Fund's shares to such class
based on the ratio of sales of such class to the sales of both classes of
shares. The fees paid by one class of a Fund's shares will not be used to
subsidize the sale of any other class of the Fund's shares.
For the fiscal year ended September 30, 1998, HIGH YIELD FUND, INCOME
FUND, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $________, $___________,
$__________ and $_____________, respectively, pursuant to their respective Class
A Plan. For the same period, the Underwriter incurred the following Class A
Plan-related expenses with respect to each Fund:
<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
HIGH YIELD FUND $ -0- $
INCOME FUND
GOVERNMENT FUND
INVESTMENT GRADE FUND -0-
</TABLE>
For the fiscal year ended September 30, 1998, HIGH YIELD FUND, INCOME
FUND, GOVERNMENT FUND AND INVESTMENT GRADE FUND paid $_______, $________,
$____________ and $_____________, respectively, pursuant to their respective
Class B Plan. For the same period, the Underwriter incurred the following Class
B Plan-related expenses with respect to each Fund:
<TABLE>
<CAPTION>
Compensation to Compensation to Compensation to
Fund Underwriter Dealers Sales Personnel
- ---- ----------- ------- ---------------
<S> <C> <C> <C>
HIGH YIELD FUND
INCOME FUND
GOVERNMENT FUND
INVESTMENT GRADE FUND
</TABLE>
DETERMINATION OF NET ASSET VALUE
Except as provided herein, a security listed or traded on an exchange or
the Nasdaq Stock Market is valued at its last sale price on the exchange or
market where the security is principally traded, and lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices. Securities traded in the OTC market (including securities listed
on exchanges whose primary market is believed to be OTC) are valued at the mean
between the last bid and asked prices prior to the time when assets are valued
based upon quotes furnished by market makers for such securities. However, a
Fund may determine the value of debt securities based upon prices furnished by
25
<PAGE>
an outside pricing service. The pricing service uses quotations obtained from
investment dealers or brokers for the particular securities being evaluated,
information with respect to market transactions in comparable securities and
considers security type, rating, market condition, yield data and other
available information in determining value. Short-term debt securities that
mature in 60 days or less are valued at amortized cost. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the applicable Fund's
officers in a manner specifically authorized by the applicable Fund's Board of
Directors.
"When-issued securities" are reflected in the assets of a Fund as of the
date the securities are purchased. Such investments are valued thereafter at the
mean between the most recent bid and asked prices obtained from recognized
dealers in such securities or by the pricing services. For valuation purposes,
quotations of foreign securities in foreign currencies are converted into U.S.
dollar equivalents using the foreign exchange equivalents in effect.
Each Fund's Board may suspend the determination of a Fund's net asset
value per share for the whole or any part of any period (1) during which trading
on the New York Stock Exchange ("NYSE") is restricted as determined by the SEC
or the NYSE is closed for other than weekend and holiday closings, (2) during
which an emergency, as defined by rules of the SEC in respect to the U.S.
market, exists as a result of which disposal by a Fund of securities owned by it
is not reasonably practicable for the Fund fairly to determine the value of its
net assets, or (3) for such other period as the SEC has by order permitted.
EMERGENCY PRICING PROCEDURES. In the event that the Funds must halt
operations during any day that they would normally be required to price under
Rule 22c-1 under the 1940 Act due to an emergency ("Emergency Closed Day"), the
Funds will apply the following procedures:
1. The Funds will make every reasonable effort to segregate orders
received on the Emergency Closed Day and give them the price that they would
have received but for the closing. The Emergency Closed Day price will be
calculated as soon as practicable after operations have resumed and will be
applied equally to sales, redemptions and repurchases that were in fact received
in the mail or otherwise on the Emergency Closed Day.
2. For purposes of paragraph 1, an order will be deemed to have been
received by the Funds on an Emergency Closed Day, even if neither the Funds nor
the Transfer Agent is able to perform the mechanical processing of pricing on
that day, under the following circumstances:
(a) In the case of a mail order the order will be considered
received by a Fund when the postal service has delivered it to FIC's Woodbridge
offices prior to the close of regular trading on the NYSE; and
(b) In the case of a wire order, including a Fund/SERV order, the
order will be considered received when it is received in good form by a FIC
branch office or an authorized dealer prior to the close of regular trading on
the NYSE.
3. If the Funds are unable to segregate orders received on the Emergency
Closed Day from those received on the next day the Funds are open for business,
the Funds may give all orders the next price calculated after operations resume.
4. Notwithstanding the foregoing, on business days in which the NYSE is
not open for regular trading, the Funds may determine not to price their
portfolio securities if such prices would lead to a distortion of the NAV, for
the Funds and their shareholders.
26
<PAGE>
ALLOCATION OF PORTFOLIO BROKERAGE
The Adviser may purchase or sell portfolio securities on behalf of the
Fund in agency or principal transactions. In agency transactions, the Fund
generally pays brokerage commissions. In principal transactions, the Fund
generally does not pay commissions, however the price paid for the security may
include an undisclosed dealer commission or "mark-up" or selling concessions.
The Adviser normally purchases fixed-income securities on a net basis from
primary market makers acting as principals for the securities. The Adviser may
purchase certain money market instruments directly from an issuer without paying
commissions or discounts. The Adviser may also purchase securities traded in the
OTC market. As a general practice, OTC securities are usually purchased from
market makers without paying commissions, although the price of the security
usually will include undisclosed compensation. However, when it is advantageous
to the Fund the Adviser may utilize a broker to purchase OTC securities and pay
a commission.
In purchasing and selling portfolio securities on behalf of the Fund, the
Adviser will seek to obtain best execution. The Fund may pay more than the
lowest available commission in return for brokerage and research services.
Additionally, upon instruction by the Board, the Adviser may use dealer
concessions available in fixed-priced underwritings to pay for research and
other services. Research and other services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to securities, reports and analysis
concerning issuers and their creditworthiness, and Lipper's Directors'
Analytical Data concerning Fund performance and fees. The Adviser generally uses
the research and other services to service all the funds in the First Investors
Family of Funds, rather than the particular Funds whose commissions may pay for
research or other services. In other words, a Fund's brokerage may be used to
pay for a research service that is used in managing another Fund within the
First Investor Fund Family. The Lipper's Directors' Analytical Data is used by
the Adviser and the Fund Board to analyze a fund's performance relative to other
comparable funds.
In selecting the broker-dealers to execute the Fund's portfolio
transactions, the Adviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty of the order, the
trading characteristics of the security involved, the difficulty in executing
the order, the research and other services provided, the expertise, reputation
and reliability of the broker-dealer, access to new offerings, and other factors
bearing upon the quality of the execution. The Adviser does not place portfolio
orders with an affiliated broker, or allocate brokerage commission business to
any broker-dealer for distributing fund shares. Moreover, no broker-dealer
affiliated with the Adviser participates in commissions generated by portfolio
orders placed on behalf of the Fund.
The Adviser may combine transaction orders placed on behalf of a Fund and
any other Fund in the First Investors Group of Funds, any fund of Executive
Investors Trust and First Investors Life Insurance Company, affiliates of the
Funds, for the purpose of negotiating brokerage commissions or obtaining a more
favorable transaction price; and where appropriate, securities purchased or sold
may be allocated in accordance with written procedures approved by each Fund's
Board of Directors.
For the fiscal year ended December 31, 1996, HIGH YIELD FUND paid $5,096
in brokerage commissions. Of that amount $4,731 was paid in brokerage
commissions to brokers who furnished research services on portfolio transactions
in the amount of $733,093. For the fiscal year ended December 31, 1996, INCOME
FUND paid $9,315 in brokerage commissions. Of that amount, $8,534 was paid in
brokerage commissions to brokers who furnished research services on portfolio
transactions in the amount of $1,007,112. For the fiscal year ended December 31,
1996, GOVERNMENT FUND paid $666 in brokerage commissions, none of which was paid
to brokers who provided research services. For the fiscal year ended December
31, 1996, INVESTMENT GRADE FUND did not pay any brokerage commissions.
27
<PAGE>
For the fiscal year ended December 31, 1997, HIGH YIELD FUND paid $2,359
in brokerage commissions, all of which was paid to brokers who furnished
research services on portfolio transactions in the amount of $385,732. For the
fiscal year ended December 31, 1997, INCOME FUND paid $1,200 in brokerage
commissions, all of which was paid to brokers who furnished research services on
portfolio transactions in the amount of $538,470. For the fiscal year ended
December 31, 1997, GOVERNMENT FUND did not pay any brokerage commissions. For
the fiscal year ended December 31, 1997, INVESTMENT GRADE FUND did not pay any
brokerage commissions.
For the fiscal year ended September 30, 1998, HIGH YIELD FUND paid
$_________ in brokerage commissions, all of which was paid to brokers who
furnished research services on portfolio transactions in the amount of
$_____________. For the fiscal year ended September 30, 1998, INCOME FUND paid
$__________ in brokerage commissions, all of which was paid to brokers who
furnished research services on portfolio transactions in the amount of
$____________. For the fiscal year ended September 30, 1998, GOVERNMENT FUND
paid $___________ in brokerage commissions, all of which was paid to brokers who
furnished research services on portfolio transactions in the amount of
$_________. For the fiscal year ended September 30, 1998, INVESTMENT GRADE FUND
paid $________ in brokerage commissions, all of which was paid to brokers who
furnished research services on portfolio transactions in the amount of
$____________.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Information regarding the purchase, redemption and exchange of Fund shares
is contained in the Shareholder Manual, a separate section of the SAI that is a
distinct document and may be obtained free of charge by contacting your Fund.
REDEMPTIONS-IN-KIND. If each Fund's Board should determine that it would
be detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution in kind of securities from the portfolio of
the Fund. If shares are redeemed in kind, the redeeming shareholder will likely
incur brokerage costs in converting the assets into cash. The method of valuing
portfolio securities for this purpose is described under "Determination of Net
Asset Value."
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"), a Fund must distribute to its shareholders for each taxable year at
least 90% of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions) ("Distribution Requirement") and must meet
several additional requirements. For each Fund these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including, for HIGH YIELD FUND gains from futures
contracts and, for INVESTMENT GRADE FUND, gains from options and futures
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
28
<PAGE>
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer. If a Fund failed to qualify as a RIC for any
taxable year, it would be taxed on the full amount of its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders and the shareholders would treat all those distributions, including
distributions of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), as dividends (that is, ordinary income) to the
extent of the Fund's earnings and profits.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions are taxed to
shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable income
may be eligible for the dividends-received deduction allowed to corporations.
The eligible portion may not exceed the aggregate dividends received by the Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the Federal alternative minimum tax. Although each Fund is
authorized to hold equity securities, it is expected that any dividend income
received by a Fund will be minimal; accordingly, very little, if any, of the
distributions made by the Funds will be eligible for the dividends-received
deduction.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and interest received by a Fund, and gains realized by a Fund,
may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield and/or total return
on its securities. Tax conventions between certain countries and the United
States may reduce or eliminate these taxes, however, and many foreign countries
do not impose taxes on capital gains in respect of investments by foreign
investors.
HIGH YIELD FUND, INCOME FUND AND INVESTMENT GRADE FUND may each invest in
the stock of "passive foreign investment companies" ("PFICs"). A PFIC is a
foreign corporation other than a "controlled foreign corporation" (i.e., a
foreign corporation in which, on any day during its taxable year, more than 50%
of the total voting power of all voting stock therein or the total value of all
stock therein is owned, directly, indirectly, or constructively, by "U.S.
shareholders," defined as U.S. persons that individually own, directly,
indirectly, or constructively, at least 10% of that voting power) as to which
the Fund is a U.S. shareholder ( effective after October 31, 1998) - that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, if
the Fund holds stock of a PFIC, it will be subject to Federal income tax on a
portion of any "excess distribution" received on the stock or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
29
<PAGE>
If these Funds invest in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF") then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) - which
probably would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax - even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Effective for its taxable year beginning November 1, 1998, these Funds may
elect to "mark-to-market" its stock in any PFICs. "Marking-to-market," in this
context, means including in ordinary income each taxable year the excess, if
any, of the fair market value of the PFIC's stock over the Fund's adjusted basis
in that stock as of the end of that year. Pursuant to the election, the Fund
also will be allowed to deduct (as an ordinary, not capital, loss) the excess,
if any, of its adjusted basis in PFIC stock over the fair market value thereof
as of the taxable year-end, but only to the extent of any net mark-to-market
gains with respect to that stock included by the Fund for prior taxable years.
The Fund's adjusted basis in each PFIC's stock with respect to which it makes
this election will be adjusted to reflect the amounts of income included and
deductions taken under the election. Regulations proposed in 1992 would provide
a similar election with respect to the stock of certain PFICs.
Each Fund may acquire zero coupon or other securities issued with original
issue discount. As a holder of those securities, each Fund must include in its
income the portion of the original issue discount that accrues on the securities
during the taxable year, even if the Fund receives no corresponding payment on
them during the year. Similarly, each Fund must include in its gross income
securities it receives as "interest" on pay-in-kind securities. Because each
Fund annually must distribute substantially all of its investment company
taxable income, including any original issue discount and other non-cash income,
to satisfy the Distribution Requirement and avoid imposition of the Excise Tax,
a Fund may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. A Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment company
taxable income and/or net capital gain.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses HIGH YIELD FUND AND INVESTMENT GRADE FUND will realize in connection
therewith. Gains from options and futures contracts derived by a Fund with
respect to its business of investing in securities or foreign currencies and
gains from each Fund's disposition of foreign currencies (except certain gains
therefrom that may be excluded by future regulations) will qualify as
permissible income under the Income Requirement.
If a Fund has an "appreciated financial position" - generally, an interest
(including an interest through an option, futures contract or short sale) with
respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted basis -
and enters into a "constructive sale" of the same or substantially similar
property, the Fund will be treated as having made an actual sale thereof, with
the result that gain will be recognized at that time. A constructive sale
generally consists of a short sale, an offsetting notional principal contract or
futures contract entered into by a Fund or a related person with respect to the
same or substantially similar property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
30
<PAGE>
PERFORMANCE INFORMATION
A Fund may advertise its top holdings from time to time. A Fund may also
advertise performance in various ways.
Each Fund's "average annual total return" ("T") is an average annual
compounded rate of return. The calculation produces an average annual total
return for the number of years measured. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P") over a
number of years ("n") with an Ending Redeemable Value ("ERV") of that
investment, according to the following formula:
T=[(ERV/P)^(1/n)]-1
The "total return" uses the same factors, but does not average the rate of
return on an annual basis. Total return is determined as follows:
(ERV-P)/P = TOTAL RETURN
Total return is calculated by finding the average annual change in the
value of an initial $1,000 investment over the period. In calculating the ending
redeemable value for Class A shares, each Fund will deduct the maximum sales
charge of 6.25% (as a percentage of the offering price) from the initial $1,000
payment and, for Class B shares, the applicable CDSC imposed on a redemption of
Class B shares held for the period is deducted. All dividends and other
distributions are assumed to have been reinvested at net asset value on the
initial investment ("P").
Return information may be useful to investors in reviewing a Fund's
performance. However, certain factors should be taken into account before using
this information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. Return information will
fluctuate over time and return information for any given past period will not be
an indication or representation of future rates of return. At times, the Adviser
may reduce its compensation or assume expenses of a Fund in order to reduce the
Fund's expenses. Any such waiver or reimbursement would increase the Fund's
return during the period of the waiver or reimbursement.
Average annual return and total return computed at the public offering
price (maximum sales charge for Class A shares and applicable CDSC for Class B
shares) for the period ended ________, 1998 are set forth in the tables below:
AVERAGE ANNUAL TOTAL RETURN1, 2
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
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<PAGE>
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
TOTAL RETURN1, 2
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares3 Shares Shares3
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
- -----------------------------
1 All Class A total return figures assume the maximum front-end sales charge of
6.25% and dividends reinvested at net asset value. Prior to July 1, 1993, the
maximum front-end sales charge was 6.90%. Prior to December 29, 1989, the
maximum front-end sales charge was 7.25% for HIGH YIELD FUND AND GOVERNMENT
FUND, and 8.50% for INCOME FUND. Prior to December 18, 1990, HIGH YIELD FUND'S
dividends were paid in additional shares at the public offering price.
2 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
3 The commencement date for the offering of Class B shares is January 12, 1995.
Average annual total return and total return may also be based on
investment at reduced sales charge levels or at net asset value. Any quotation
of return not reflecting the maximum sales charge will be greater than if the
maximum sales charge were used. Average annual total return and total return
computed at net asset value for the period ended _________, 1998 are set forth
in the tables below:
32
<PAGE>
AVERAGE ANNUAL TOTAL RETURN1
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
TOTAL RETURN1
High Yield Fund Income Fund
--------------- -----------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
Government Fund Investment Grade Fund
--------------- ---------------------
Class A Class B Class A Class B
Shares Shares2 Shares Shares2
------ ------- ------ -------
One Year
Five Years
Ten Years
Life of Fund
- ----------------------------
1 Certain expenses of the Funds have been waived from commencement of operations
through September 30, 1998. Accordingly, return figures are higher than they
would have been had such expenses not been waived.
2 The commencement date for the offering of Class B shares is January 12, 1995.
Yield is presented for a specified thirty-day period ("base period").
Yield is based on the amount determined by (i) calculating the aggregate amount
of dividends and interest earned by a Fund during the base period less expenses
33
<PAGE>
accrued for that period (net of reimbursement), and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the per share
maximum public offering price for Class A shares or the net asset value for
Class B shares of the Fund on the last day of the base period. The result is
annualized by compounding on a semi-annual basis to determine the Fund's yield.
For this calculation, interest earned on debt obligations held by the Fund is
generally calculated using the yield to maturity (or first expected call date)
of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMA Certificates, based on cost).
Dividends on equity securities are accrued daily at their estimated stated
dividend rates.
For the 30 days ended __________, 1998, the yield for Class A shares and
Class B shares of HIGH YIELD FUND was ____% and ______-%, respectively. For the
30 days ended __________-, 1998, the yield for Class A and Class B shares of
INCOME FUND was ______% and ________%, respectively. For the 30 days ended
__________, 1998, the yield for Class A shares and Class B shares of GOVERNMENT
FUND was _______-% and __________%, respectively. For the 30 days ended
__________-, 1998, the yield for Class A and Class B shares of INVESTMENT GRADE
FUND was ______-% and _______%, respectively. During this period certain
expenses of the Funds were waived. Accordingly, yield is higher than it would
have been if such expenses had not been waived.
The distribution rate for each Fund is presented for a twelve-month
period. It is calculated by adding the dividends for the last twelve months and
dividing the sum by a Fund's offering price per share at the end of that period.
The distribution rate is also calculated by using a Fund's net asset value.
Distribution rate calculations do not include capital gain distributions, if
any, paid. The distribution rate for the twelve-month period ended __________,
1998 for Class A shares of HIGH YIELD FUND, INCOME FUND, GOVERNMENT FUND AND
INVESTMENT GRADE FUND calculated using the offering price was ______%,
_____________%, ___________% and _______%, respectively. The distribution rate
for the same period for Class A shares of the Funds calculated using net asset
value was ________%, __________%, __________% and _________%, respectively. The
distribution rate for the same period for Class B shares of HIGH YIELD FUND,
INCOME FUND, GOVERNMENT FUND AND INVESTMENT GRADE FUND calculated using net
asset value was _____%, ___________%, ___________% and __________%,
respectively. During this period certain expenses of the Funds were waived.
Accordingly, the distribution rates are higher than they would have been had
such expenses not been waived.
Each Fund may include in advertisements and sales literature, information,
examples and statistics to illustrate the effect of compounding income at a
fixed rate of return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital gain
distributions in additional shares. These examples may also include hypothetical
returns comparing taxable versus tax-deferred growth which would pertain to an
IRA, section 403(b)(7) Custodial Account or other qualified retirement program.
The examples used will be for illustrative purposes only and are not
representations by the Fund of past or future yield or return. Examples of
typical graphs and charts depicting such historical performance, compounding and
hypothetical returns are included in Appendix C.
From time to time, in reports and promotional literature, each Fund may
compare its performance to, or cite the historical performance of, Overnight
Government repurchase agreements, U.S. Treasury bills, notes and bonds,
certificates of deposit, and six-month money market certificates or indices of
broad groups of unmanaged securities considered to be representative of, or
similar to, that Fund's portfolio holdings, such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized
independent service that monitors and ranks the performance of regulated
investment companies. The Lipper performance analysis includes the
reinvestment of capital gain distributions and income dividends but does
not take sales charges into consideration. The method of calculating total
34
<PAGE>
return data on indices utilizes actual dividends on ex-dividend dates
accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of
Morningstar, Inc. Morningstar proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. Funds
with at least three years of performance history are assigned ratings from
one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the funds' three-, five-, and ten-year average annual
returns (when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars, and the bottom 10% receive
one star.
Salomon Brothers Inc., "Market Performance," a monthly publication which
tracks principal return, total return and yield on the Salomon Brothers
Broad Investment-Grade Bond Index and the components of the Index.
Telerate Systems, Inc., a computer system to which the Adviser subscribes
which daily tracks the rates on money market instruments, public corporate
debt obligations and public obligations of the U.S. Treasury and agencies
of the U.S. Government.
35
<PAGE>
THE WALL STREET JOURNAL, a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. Government as well as common stocks, preferred
stocks, convertible preferred stocks, options and commodities; in addition
to indices prepared by the research departments of such financial
organizations as Lehman Bros., Merrill Lynch, Pierce, Fenner and Smith,
Inc., Credit Suisse First Boston, Salomon Smith Barney, Morgan Stanley
Dean Witter & Co., Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette,
Value Line, Datastream International, HBSC James Capel, Warburg Dillion
Read, County Natwest and UBS UK Limited, including information provided by
the Federal Reserve Board, Moody's, and the Federal Reserve Bank.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a
monthly corporate government index publication which lists principal,
coupon and total return on over 100 different taxable bond indices which
Merrill Lynch tracks. They also list the par weighted characteristics of
each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly publication
which tracks principal, coupon and total return on the Lehman Govt./Corp.
Index and Lehman Aggregate Bond Index, as well as all the components of
these Indices.
Reuters, a wire service that frequently reports on global business.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of inflation. The Index shows changes in the
cost of selected consumer goods and does not represent a return on an
investment vehicle.
The Credit Suisse First Boston High Yield Index is designed to measure the
performance of the high yield bond market.
The Lehman Brothers Aggregate Index is an unmanaged index which generally
covers the U.S. investment grade fixed rate bond market, including
government and corporate securities, agency mortgage pass-through
securities, and asset-backed securities.
The Lehman Brothers Corporate Bond Index includes all publicly issued,
fixed rate, nonconvertible investment grade dollar-denominated, corporate
debt which have at least one year to maturity and an outstanding par value
of at least $100 million.
Moody's Stock Index, an unmanaged index of utility stock performance.
The Morgan Stanley All Country World Free Index is designed to measure the
performance of stock markets in the United States, Europe, Canada,
Australia, New Zealand and the developed and emerging markets of Eastern
Europe, Latin America, Asia and the Far East. The index consists of
approximately 60% of the aggregate market value of the covered stock
exchanges and is calculated to exclude companies and share classes which
cannot be freely purchased by foreigners.
The Morgan Stanley World Index is designed to measure the performance of
stock markets in the United States, Europe, Canada, Australia, New Zealand
and the Far East. The index consists of approximately 60% of the aggregate
market value of the covered stock exchanges.
The NYSE composite of component indices--unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the
NYSE.
36
<PAGE>
The Russell 2000 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 1000 to
3000 by market capitalization. The Russell 2000 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
The Russell 2500 Index, prepared by the Frank Russell Company, consists of
U.S. publicly traded stocks of domestic companies that rank from 500 to
3000 by market capitalization. The Russell 2500 tracks the return on these
stocks based on price appreciation or depreciation and does not include
dividends and income or changes in market values caused by other kinds of
corporate changes.
The Salomon Brothers Government Index is a market capitalization-weighted
index that consists of debt issued by the U.S. Treasury and U.S.
Government sponsored agencies.
The Salomon Brothers Mortgage Index is a market capitalization-weighted
index that consists of all agency pass-throughs and FHA and GNMA project
notes.
The Standard & Poor's 400 Midcap Index is an unmanaged
capitalization-weighted index that is generally representative of the U.S.
market for medium cap stocks.
The Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average of 30 stocks are unmanaged lists of common stocks
frequently used as general measures of stock market performance. Their
performance figures reflect changes of market prices and quarterly
reinvestment of all distributions but are not adjusted for commissions or
other costs.
The Standard & Poor's Smallcap 600 Index is a capitalization-weighted
index that measures the performance of selected U.S. stocks with a small
market capitalization.
The Standard & Poor's Utilities Index is an unmanaged capitalization
weighted index comprising common stock in approximately 40 electric,
natural gas distributors and pipelines, and telephone companies. The Index
assumes the reinvestment of dividends.
From time to time, in reports and promotional literature, performance
rankings and ratings reported periodically in national financial publications
such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may
also be used. In addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL STREET
JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited.
GENERAL INFORMATION
HIGH YIELD FUND and INCOME FUND were incorporated in the state of Maryland
on November 14, 1984 and August 20, 1970, respectively. HIGH YIELD FUND'S
authorized capital stock consists of 500 million shares of common stock, all of
one series, with a par value per share of $0.01. INCOME FUND'S authorized
capital stock consists of 1 billion shares of common stock, all of one series,
with a par value per share of $1.00. Each Fund is authorized to issue shares of
common stock in such separate and distinct series and classes of series as the
particular Fund's Board of Directors shall from time to time establish. The
shares of common stock of each Fund are presently divided into two classes,
designated Class A shares and Class B shares. Each class of a Fund represents
interests in the same assets of that Fund. The Funds do not hold annual
shareholder meetings. If requested to do so by the holders of at least 10% of a
Fund's outstanding shares, such Fund's Board of Directors will call a special
meeting of shareholders for any purpose, including the removal of Directors.
Each share of each Fund has equal voting rights except as noted above.
37
<PAGE>
GOVERNMENT FUND was incorporated in the state of Maryland on September 21,
1983. GOVERNMENT FUND'S authorized capital stock consists of 1 billion shares of
common stock, all of one series, with a par value per share of $.01. The Fund is
authorized to issue shares of common stock in such separate and distinct series
and classes of shares as the particular Fund's Board of Directors shall from
time to time establish. The shares of common stock of the Fund are presently
divided into two classes, designated Class A shares and Class B shares. Each
class of the Fund represents interests in the same assets of that Fund. The Fund
does not hold annual shareholder meetings. If requested to do so by the holders
of at least 10% of the Fund's outstanding shares, the Fund's Board of Directors
will call a special meeting of shareholders for any purpose, including the
removal of Directors. Each share of the Fund has equal voting rights except as
noted above.
SERIES FUND is a Massachusetts business trust organized on September 23,
1988. SERIES FUND is authorized to issue an unlimited number of shares of
beneficial interest, no par value, in such separate and distinct series and
classes of shares as the Board of Trustees shall from time to time establish.
The shares of beneficial interest of SERIES FUND are presently divided into five
separate and distinct series, each having two classes, designated Class A shares
and Class B shares. SERIES FUND does not hold annual shareholder meetings. If
requested to do so by the holders of at least 10% of SERIES FUND'S outstanding
shares, SERIES FUND'S Board of Trustees will call a special meeting of
shareholders for any purpose, including the removal of Trustees. Each share of
each Fund has equal voting rights except as noted above.
CUSTODIAN. The Bank of New York, 48 Wall Street, New York, NY 10286, is
custodian of the securities and cash of each Fund.
AUDITS AND REPORTS. The accounts of each Fund are audited twice a year by
Tait, Weller & Baker, independent certified public accountants, 8 Penn Center
Plaza, Philadelphia, PA, 19103. Shareholders of each Fund receive semi-annual
and annual reports, including audited financial statements, and a list of
securities owned.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036 serves as counsel to the Funds.
TRANSFER AGENT. Administrative Data Management Corp., 581 Main Street,
Woodbridge, NJ 07095-1198, an affiliate of FIMCO and FIC, acts as transfer agent
for the Funds and as redemption agent for regular redemptions. The fees charged
to each Fund by the Transfer Agent are $5.00 to open an account; $3.00 for each
certificate issued; $.75 per account per month; $10.00 for each legal transfer
of shares; $.45 per account per dividend declared; $5.00 for each exchange of
shares into a Fund; $5.00 for each partial withdrawal or complete liquidation;
$1.00 for each Systematic Withdrawal Plan check; $4.00 for each shareholder
services call; $20.00 for each item of correspondence; and $1.00 per account per
report required by any governmental authority. Additional fees charged to the
Funds by the Transfer Agent are assumed by the Underwriter. The Transfer Agent
reserves the right to change the fees on prior notice to the Funds. Upon request
from shareholders, the Transfer Agent will provide an account history. For
account histories covering the most recent three year period, there is no
charge. The Transfer Agent charges a $5.00 administrative fee for each account
history covering the period 1983 through 1994 and $10.00 per year for each
account history covering the period 1974 through 1982. Account histories prior
to 1974 will not be provided. If any communication from the Transfer Agent to a
shareholder is returned from the U.S. Postal Service marked as "Undeliverable"
two consecutive times, the Transfer Agent will cease sending any further
materials to the shareholder until the Transfer Agent is provided with a correct
address. Efforts to locate a shareholder will be conducted in accordance with
SEC rules and regulations prior to escheatment of funds to the appropriate state
treasury. The Transfer Agent may deduct the costs of its efforts to locate a
shareholder from the shareholder's account. These costs may include a percentage
of the account if a search company charges such a fee in exchange for its
location services. The Transfer Agent is not responsible for any fees that
38
<PAGE>
states and/or their representatives may charge for processing the return of
funds to investors whose funds have been escheated. The Transfer Agent's
telephone number is 1-800-423-4026.
5% AND 25% SHAREHOLDERS. As of October 31, 1998, [UPDATE FOR EACH FUND]
SHAREHOLDER LIABILITY. SERIES FUND, INVESTMENT GRADE FUND is organized as
an entity known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of INVESTMENT GRADE FUND. The Declaration
of Trust however, contains an express disclaimer of shareholder liability for
acts or obligations of INVESTMENT GRADE FUND and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trustees. The Fund's Declaration of Trust provides
for indemnification out of the property of the Fund of any shareholder held
personally liable for the obligations of INVESTMENT GRADE FUND. The Declaration
of Trust also provides that the Fund shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Fund and
satisfy any judgment thereon. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. The Adviser
believes that, in view of the above, the risk of personal liability to
shareholders is immaterial and extremely remote. The Declaration of Trust
further provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office. INVESTMENT GRADE FUND may have
an obligation to indemnify Trustees and officers with respect to litigation.
TRADING BY PORTFOLIO MANAGERS AND OTHER ACCESS PERSONS. Pursuant to
Section 17(j) of the 1940 Act and Rule 17j-1 thereunder, the Funds and the
Adviser have adopted Codes of Ethics restricting personal securities trading by
portfolio managers and other access persons of the Funds. Among other things,
such persons, except the Directors: (a) must have all non-exempt trades
pre-cleared; (b) are restricted from short-term trading; (c) must provide
duplicate statements and transactions confirmations to a compliance officer; and
(d) are prohibited from purchasing securities of initial public offerings.
39
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated "BB," "B," "CCC," "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
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<PAGE>
CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat greater than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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<PAGE>
Ba Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS GROUP
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
PRIME-1 Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
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- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
43
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APPENDIX C
[The following tables are represented as graphs in the printed document.]
The following graphs and chart illustrate hypothetical returns:
INCREASE RETURNS
This graph shows over a period of time even a small increase in returns can make
a significant difference.
Years 10% 8% 6% 4%
----- ------- ------ ------ ------
5 16,453 14,898 13,489 12,210
10 27,070 22,196 18,194 14,908
15 44,539 33,069 24,541 18,203
20 73,281 49,268 33,102 22,226
25 120,569 73,402 44,650 27,138
INCREASE INVESTMENT
This graph shows the more you invest on a regular basis over time, the more you
can accumulate.
Years $100 $250 $500 $1,000
----- ------ ------- ------- -------
5 7,348 18,369 36,738 73,476
10 18,295 43,736 91,473 182,946
15 34,604 86,509 173,019 346,038
20 58,902 147,255 294,510 589,020
25 95,103 237,757 475,513 951,026
<PAGE>
[The following table is represented as a graph in the printed document.]
This chart illustrates the time value of money based upon the following
assumptions:
If you invested $2,000 each year for 20 years, starting at 25, assuming a 9%
investment return, you would accumulate $573,443 by the time you reach age 65.
However, had you invested the same $2,000 each year for 20 years, at that rate,
but waited until age 35, you would accumulate only $242,228 - a difference of
$331,215.
25 years old .............. 573,443
35 years old .............. 242,228
45 years old .............. 103,320
For each of the above graphs and chart it should be noted that systematic
investment plans do not assume a profit or protect against loss in declining
markets. Investors should consider their financial ability to continue purchases
through periods of both high and low price levels. Figures are hypothetical and
for illustrative purposes only and do not represent any actual investment or
performance. The value of a shareholder's investment and return may vary.
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart illustrates the historical performance of the Dow Jones
Industrial Average from 1928 through 1996.
1928 .................. 300.00
1929 .................. 248.48
1930 .................. 164.58
1931 .................. 77.90
1932 .................. 59.93
1933 .................. 99.90
1934 .................. 104.04
1935 .................. 144.13
1936 .................. 179.90
1937 .................. 120.85
1938 .................. 154.76
1939 .................. 150.24
1940 .................. 131.13
1941 .................. 110.96
1942 .................. 119.40
1943 .................. 136.20
1944 .................. 152.32
1945 .................. 192.91
1946 .................. 177.20
1947 .................. 181.16
1948 .................. 177.30
1949 .................. 200.10
1950 .................. 235.40
1951 .................. 269.22
1952 .................. 291.89
1953 .................. 280.89
1954 .................. 404.38
1955 .................. 488.39
1956 .................. 499.46
1957 .................. 435.68
1958 .................. 583.64
1959 .................. 679.35
1960 .................. 615.88
1961 .................. 731.13
1962 .................. 652.10
1963 .................. 762.94
1964 .................. 874.12
1965 .................. 969.25
1966 .................. 785.68
1967 .................. 905.10
1968 .................. 943.75
1969 .................. 800.35
1970 .................. 838.91
1971 .................. 890.19
1972 .................. 1,020.01
1973 .................. 850.85
1974 .................. 616.24
1975 .................. 858.71
1976 .................. 1,004.65
1977 .................. 831.17
1978 .................. 805.01
1979 .................. 838.74
1980 .................. 963.98
1981 .................. 875.00
1982 .................. 1,046.55
1983 .................. 1,258.64
1984 .................. 1,211.56
1985 .................. 1,546.67
1986 .................. 1,895.95
1987 .................. 1,938.80
1988 .................. 2,168.60
1989 .................. 2,753.20
1990 .................. 2,633.66
1991 .................. 3,168.83
1992 .................. 3,301.11
1993 .................. 3,754.09
1994 .................. 3,834.44
1995 .................. 5,000.00
1996 .................. 6,000.00
The performance of the Dow Jones Industrial Average is not indicative of
the performance of any particular investment. It does not take into account fees
and expenses associated with purchasing mutual fund shares. Individuals cannot
invest directly in any index. Please note that past performance does not
guarantee future results.
<PAGE>
[The following table is represented as a chart in the printed document.]
The following chart shows that inflation is constantly eroding the value of your
money.
THE EFFECTS OF INFLATION OVER TIME
1966 ....................... 96.61836
1967 ....................... 93.80423
1968 ....................... 89.59334
1969 ....................... 84.36285
1970 ....................... 79.88906
1971 ....................... 77.33694
1972 ....................... 74.79395
1973 ....................... 68.80768
1974 ....................... 61.27131
1975 ....................... 57.31647
1976 ....................... 54.63915
1977 ....................... 51.20820
1978 ....................... 46.98000
1979 ....................... 41.46514
1980 ....................... 36.85790
1981 ....................... 33.84564
1982 ....................... 32.60659
1983 ....................... 31.41290
1984 ....................... 30.23378
1985 ....................... 29.12696
1986 ....................... 28.81005
1987 ....................... 27.59583
1988 ....................... 26.43279
1989 ....................... 25.27035
1990 ....................... 23.81748
1991 ....................... 23.10134
1992 ....................... 22.45028
1993 ....................... 21.86006
1994 ....................... 21.28536
1995 ....................... 20.76620
1996 ....................... 20.16135
1996 ....................... 100.00
1997 ....................... 103.00
1998 ....................... 106.00
1999 ....................... 109.00
2000 ....................... 113.00
2001 ....................... 116.00
2002 ....................... 119.00
2003 ....................... 123.00
2004 ....................... 127.00
2005 ....................... 130.00
2006 ....................... 134.00
2007 ....................... 138.00
2008 ....................... 143.00
2009 ....................... 147.00
2010 ....................... 151.00
2011 ....................... 156.00
2012 ....................... 160.00
2013 ....................... 165.00
2014 ....................... 170.00
2015 ....................... 175.00
2016 ....................... 181.00
2017 ....................... 186.00
2018 ....................... 192.00
2019 ....................... 197.00
2020 ....................... 203.00
2021 ....................... 209.00
2022 ....................... 216.00
2023 ....................... 222.00
2024 ....................... 229.00
2025 ....................... 236.00
2026 ....................... 243.00
Inflation erodes your buying power. $100 in 1966, could purchase five times the
goods and service as in 1996 ($100 vs. $20).* Projecting inflation at 3%, goods
and services costing $100 today will cost $243 in the year 2026.
* Source: Consumer Price Index, U.S. Bureau of Labor Statistics.
<PAGE>
[The following tables are represented as graphs in the printed document.]
This chart illustrates that historically, the longer you hold onto stocks, the
greater chance that you will have a positive return.
1926 through 1996*
Total Number of Percentage of
Number of Positive Positive
Rolling Period Periods Periods Periods
-------------- ------- ------- -------
1-Year 71 51 72%
5-Year 67 60 90%
10-Year 62 60 97%
15-Year 57 57 100%
20-Year 52 52 100%
The following chart shows the compounded annual return of large company stocks
compared to U.S. Treasury Bills and inflation over the most recent 15 year
period. **
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Large Company Stocks .......... 16.79
The following chart illustrates for the period shown that long-term corporate
bonds have outpaced U.S. Treasury Bills and inflation.
Compound Annual Return from 1982 -- 1996*
Inflation ..................... 3.55
U.S. Treasury Bills ........... 6.50
Long-Term Corp. bonds ......... 13.66
* Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All rights
reserved. [Certain provisions of this work were derived from copyrighted
works of Roger G. Ibbotson and Rex Sinquefield.]
** Please note that U.S. Treasury bills are guaranteed as to principal and
interest payments (although the funds that invest in them are not), while
stocks will fluctuate in share price. Although past performance cannot
guarantee future results, returns of U.S. Treasury bills historically have
not outpaced inflation by as great a margin as stocks.
<PAGE>
The accompanying table illustrates that if you are in the 36% tax bracket, a
tax-free yield of 3% is actually equivalent to a taxable investment earning
4.69%.
Your Taxable Equivalent Yield
Your Federal Tax Bracket
---------------------------------------------
28.0% 31.0% 36.0% 39.6%
your tax-free yield
3.00% 4.17% 4.35% 4.69% 4.97%
3.50% 4.86% 5.07% 5.47% 5.79%
4.00% 5.56% 5.80% 6.25% 6.62%
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.25%
5.50% 7.64% 7.97% 8.59% 9.11%
This information is general in nature and should not be construed as tax advice.
Please consult a tax or financial adviser as to how this information affects
your particular circumstances.
<PAGE>
[The following table is represented as a graph in the printed document.]
The following graph illustrates how income has affected the gains from stock
investments since 1965.
S&P 500 Dividends Reinvested S&P 500 Principal Only
12/31/64 10,000 10,000
12/31/65 11,269 10,906
12/31/66 10,115 9,478
12/31/67 12,550 11,383
12/31/68 13,948 12,255
12/31/69 12,795 10,863
12/31/70 13,299 10,873
12/31/71 15,200 12,046
12/31/72 18,088 13,929
12/31/73 15,431 11,510
12/31/74 11,346 8,090
12/31/75 15,570 10,642
12/31/76 19,296 12,680
12/31/77 17,915 11,221
12/31/78 19,092 11,340
12/31/79 22,645 12,736
12/31/80 30,004 16,019
12/31/81 28,528 14,460
12/31/82 34,674 16,595
12/31/83 42,496 19,461
12/31/84 45,161 19,733
12/31/85 59,489 24,930
12/31/86 70,594 28,575
12/31/87 74,301 29,154
12/31/88 86,641 32,769
12/31/89 114,093 41,699
12/31/90 110,549 38,964
12/31/91 144,230 49,214
12/31/92 155,218 51,411
12/31/93 170,863 55,039
12/31/94 173,120 54,191
12/31/95 238,175 72,676
12/31/96 292,863 87,403
11/30/97 383,977 112,732
Source: First Investors Management Company, Inc. Standard & Poor's is a
registered trademark. The S&P 500 is an unmanaged index comprising 500 common
stocks spread across a variety of industries. The total returns represented
above compare the impact of reinvestment of dividends and illustrates past
performance of the index. The performance of any index is not indicative of the
performance of a particular investment and does not take into account the
effects of inflation or the fees and expenses associated with purchasing mutual
fund shares. Individuals cannot invest directly in any index. Mutual fund shares
will fluctuate in value, therefore, the value of your original investment and
your return may vary. Moreover, past performance is no guarantee of future
results.
<PAGE>
<PAGE>
Financial Statements
as of September 30, 1998
First Investors Fund For Income, Inc. (2-38309) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1998
electronically filed with the Commission on _________, 1998 (Accession Number:).
First Investors High Yield Fund, Inc. (33-4935) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1998
electronically filed with the Commission on _________, 1998 (Accession Number:).
First Investors Government Fund, Inc. (2-89287) incorporates by reference the
financial statements and report of independent auditors contained in the Annual
Report to shareholders for the fiscal year ended September 30, 1998
electronically filed with the Commission on _________, 1998 (Accession Number:).
First Investors Series Fund, Investment Grade Fund. (33-25623) incorporates by
reference the financial statements and report of independent auditors contained
in the Annual Report to shareholders for the fiscal year ended September 30,
1998 electronically filed with the Commission on _________, 1998 (Accession
Number: ).
<PAGE>
SHAREHOLDER MANUAL
A GUIDE TO YOUR
FIRST INVESTORS
MUTUAL FUND ACCOUNT
<PAGE>
<PAGE>
INTRODUCTION
Investing in mutual funds doesn't have to be complicated. In addition to a wide
variety of mutual funds, First Investors offers personalized service. Your
registered representative is available to answer your questions and help you
process your transactions. In the event you wish to process a transaction
directly, the material provided in this easy-to-follow guide tells you how to
contact us and explains our policies and procedures.
Please read this manual completely to gain a better understanding of how shares
are bought, sold, exchanged, and transferred. In addition, the manual provides
you with a description of the services we offer to simplify investing. The
services, privileges and fees referenced in this manual are subject to change.
You should call our Shareholder Services Department at 1 (800) 423-4026 before
initiating any transaction.
This manual must be preceded or accompanied by a First Investors mutual fund
prospectus. For more complete information on any First Investors Fund, including
charges and expenses, refer to the prospectus. Read the prospectus carefully
before you invest or send money.
95 Wall Street
New York, NY 10005
November 13, 1998
3
<PAGE>
TABLE OF CONTENTS
HOW TO BUY SHARES
To Open An Account.......................5
To Open a Retirement Account.............6
Additional Investments...................6
Acceptable Forms of Payment..............6
Share Classes............................6
Share Class Specification................7
Class A Shares...........................7
Class B Shares...........................9
How To Pay..............................10
HOW TO SELL SHARES
Written Redemptions.....................13
Telephone Redemptions...................13
Electronic Funds Transfer...............13
Systematic Withdrawal Plans.............14
Expedited Wire Redemptions..............14
HOW TO EXCHANGE SHARES
Exchange Methods........................15
Exchange Conditions.....................15
Exchanging Funds With Automatic
Investments
or Systematic Withdrawals...............16
WHEN AND HOW
ARE FUND SHARES PRICED?.................17
HOW ARE PURCHASE,
REDEMPTION AND
EXCHANGE ORDERS
PROCESSED AND PRICED?...................17
RIGHT TO REJECT PURCHASE
OR EXCHANGE ORDERS......................19
SIGNATURE GUARANTEE POLICY..............19
TELEPHONE PRIVILEGES
Security Measures.......................20
Eligibility.............................20
OTHER SERVICES..........................22
ACCOUNT STATEMENTS
Transaction Confirmation Statements.....24
Master Account Statements...............24
Annual and Semi-Annual Reports..........24
DIVIDENDS AND DISTRIBUTIONS
Dividends and Distributions.............25
TAX FORMS...............................26
4
<PAGE>
HOW TO BUY SHARES
First Investors offers a wide variety of mutual funds to meet your financial
needs ("FI Funds"). Your First Investors registered representative will review
your financial objectives and risk tolerance, explain our product line and
services, and help you select the right investments. Call our Shareholder
Services Department at 1 (800) 423-4026 for the number of the First Investors
office near you or visit us on-line at www.firstinvestors.com
|_| TO OPEN AN ACCOUNT
Before investing, you must establish an account with your broker/dealer.
At First Investors Corporation ("FI") you do this by completing and signing a
Master Account Agreement ("MAA"). After you determine the fund(s) you want to
purchase, deliver your completed MAA and your check, made payable to First
Investors Corporation, to your registered representative. New client accounts
must be established through your registered representative.
You need to tell us how you want your shares registered when you open a new Fund
account. Please keep the following information in mind:
- -JOINT ACCOUNTS. For any account with two or more owners, all owners must sign
requests to process transactions. Telephone privileges allow any one of the
owners to process transactions independently.
- -GIFTS AND TRANSFERS TO MINORS. Custodial accounts for a minor may be
established under your state's Uniform Gifts/Transfers to Minors Act. Custodial
accounts are registered under the minor's social security number.
- -TRUSTS. A trust account may be opened only if you have a valid written trust
document.
- -TRANSFER ON DEATH (TOD). TOD registrations, available on all FI Funds in all
states, allow individual and joint account owners to name one or more
beneficiaries. The ownership of the account automatically passes to the named
beneficiaries in the event of the death of all account owners.
- -DIVIDENDS AND CAPITAL GAINS. Fund distributions will be automatically
reinvested in your account unless you request otherwise.
SOME REGISTRATIONS REQUIRE ADDITIONAL PAPERWORK.
TYPE OF ACCOUNT ADDITIONAL DOCUMENTS REQUIRED
- -------------------------------------------------------
Corporations
Partnership
& Trusts First Investors Certificate of Authority
Transfer On Death First Investors TOD Registration Request Form
(TOD)
Estates Original or Certified Copy of Death Certificate
Certified Copy of Letters Testamentary/Administration
First Investors Executor's Certification & Indemnification
Form
Conservatorships Copy of court document appointing Conservator/Guardian
5
<PAGE>
|_| TO OPEN A RETIREMENT ACCOUNT
Fund shares may be purchased for your retirement account by completing the MAA
and the appropriate retirement plan application. First Investors offers
retirement plans for both individuals and employers as follows:
INDIVIDUAL RETIREMENT ACCOUNTS including Roth, Traditional, and Rollover IRAs.
SIMPLE IRAS offered by employers.
SEP-IRAS (SIMPLIFIED EMPLOYEE PENSION PLANS) for small business owners or people
with income from self-employment, including SARSEP IRAs.
403(b)(7) accounts for employees of eligible tax-exempt organizations such as
schools, hospitals and charitable organizations.
401(k) plans for employers.
MONEY PURCHASE PENSION
& PROFIT SHARING plans for sole proprietors.
For more information about these plans call your registered representative or
our Shareholder Services Department at 1 (800) 423-4026.
|_| MINIMUM INITIAL INVESTMENT
You can open a non-retirement account with a check made payable to First
Investors Corporation for as little as $1,000. The minimum is waived if you open
an account through one of our Automatic Investment Programs (see "How to Pay")
or through a full exchange from another FI Fund. You can open a First Investors
Traditional IRA or Roth IRA with as little as $500 (except for the Cash
Management Fund which requires a $1,000 investment). Other retirement accounts
may have lower initial investment requirements at the Fund's discretion.
|_| ADDITIONAL INVESTMENTS
Once you have established an account, you can add to it through your registered
representative or by sending us a check directly. There is no minimum
requirement on additional purchases into existing fund accounts. Remember to
include your FI Fund account number on your check made payable to First
Investors Corporation.
Mail checks to:
First Investors Corporation
Attn: Dept. CP
581 Main Street
Woodbridge, NJ 07095-1198
|_| ACCEPTABLE FORMS OF PAYMENT
The following forms of payment are acceptable:
..checks made payable to First Investors Corporation
..Money Line electronic funds transfers (see page 8)
oofederal funds wire transfers (see page 10)
For your protection, never give your registered representative cash or a check
made payable to your registered representative.
We do not accept:
- -Third party checks
- -Traveler's checks
- -Checks drawn on non-US banks
- -Money orders
- -Cash
|_| SHARE CLASSES
All FI Funds are available in Class A and Class B shares. Direct purchases into
Class B share money market accounts are not accepted. Class B money
market fund shares may only be acquired through an exchange from another Class B
share account or through Class B share dividend cross-reinvestment.
Each class of shares has its own cost structure. As a result, different classes
of shares in the same fund generally have different prices. Class A shares have
6
<PAGE>
a front-end sales charge. Class B shares have a contingent deferred sales charge
("CDSC"). While both classes have a Rule 12b-1 fee, the fee on Class B shares is
generally higher. The principal advantages of Class A shares are that they have
lower overall expenses, the availability of quantity discounts on sales charges,
and certain account privileges that are not offered on Class B shares. The
principal advantage of Class B shares is that all your money is put to work from
the outset. Your registered representative can help you decide which class of
shares is best for you.
|_| SHARE CLASS SPECIFICATION
It's very important to specify which class of shares you wish to purchase when
you open a new account. All First Investors account applications have a place to
designate your preference. If you do not specify which class of shares you want
to purchase, Class A shares will automatically be purchased.
|_| CLASS A SHARES
When you buy Class A shares, you pay the offering price - the net asset value of
the fund plus a front-end sales charge. The front-end sales charge declines with
larger investments.
CLASS A SALES CHARGES
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
up to $24,999 6.25% 6.67%
$ 25,000 - $ 49,999 5.75% 6.10%
$ 50,000 - $ 99,999 5.50% 5.82%
$100,000 - $249,999 4.50% 4.71%
$250,000 - $499,999 3.50% 3.63%
$500,000 - $999,999 2.50% 2.56%
Investments of $1 million or more will only be made in Class A shares at the
Fund's net asset value.
Generally, you should consider purchasing Class A shares if you plan to invest
$250,000 or more either initially or over time.
|_| SALES CHARGE WAIVERS
& REDUCTIONS ON CLASS A SHARES
If you qualify for one of the sales charge reductions or waivers, it is very
important to let us know at the time you place your order. Include a written
statement with your check explaining which privilege applies. If you do not
include this statement we cannot guarantee that you will receive the reduction
or waiver.
CLASS A SHARES MAY BE PURCHASED WITHOUT A SALES CHARGE
1: By an officer, trustee, director, or employee of the Fund, First Investors
Corporation, or their affiliates.
2: By a former officer, trustee, director, or employee of the Fund, First
Investors Corporation, or their affiliates provided the person worked for the
company for at least 5 years and retired or terminated employment in good
standing.
7
<PAGE>
3: By a FI registered representative or an authorized dealer, or by his/her
spouse, child (under age 21) or grandchild (under age 21).
4: When fund distributions are reinvested in Class A shares.
5: When Systematic Withdrawal Plan payments are reinvested in Class A shares.
6: When qualified retirement plan loan repayments are reinvested in Class A
shares.
7: With the liquidation proceeds from a First Investors Life Variable Annuity
Fund A, C, or D contract within one year of the contract's maturity date.
8: When dividends (at least $50 a year) from a First Investors Life Insurance
Company policy are invested into an EXISTING account.
9: When a group qualified plan (401(k) plans, money purchase pension plans,
profit sharing plans and 403(b) plans that are subject to Title I of ERISA) is
reinvesting redemption proceeds from another fund on which a sales charge or
CDSC was paid.
10: With distribution proceeds from a First Investors group qualified plan
account into an IRA.
11: By participant directed group qualified plans with 100 or more eligible
employees or $1,000,000 or more in assets.
12: In amounts of $1 million or more.
13: By individuals under a Letter of Intent or Cumulative Purchase Privilege of
$1 million or more.
FOR ITEMS 9 THROUGH 13 ABOVE: A CDSC OF 1.00% WILL BE DEDUCTED IF SHARES ARE
REDEEMED WITHIN 2 YEARS OF PURCHASE.
SALES CHARGES ON CLASS A SHARES MAY BE REDUCED FOR:
1: Participant directed group qualified retirement plans with 99 or fewer
eligible employees. The initial sales charge is reduced to 3.00% of the offering
price.
2: Certain unit trust holders ("unitholders") who elect to invest
principal, interest, and/or capital gains distributions from their unit
investment trusts in Class A shares. Unitholders of various series of New York
Insured Municipals-Income Trust sponsored by Van Kampen Merrit, Inc.,
unitholders of various series of the Multistate Tax Exempt trust sponsored by
Advest Inc., and unitholders of various series of the Insured Municipal Insured
National Trust, J.C. Bradford & Co. as agent, may buy Class A shares of a FI
Fund with unit trust distributions at the net asset value plus a sales charge of
1.5%. Unitholders of various tax-exempt trusts, other than the New York Trust,
sponsored by Van Kampen Merritt Inc. may buy Class A shares of a FI Fund at the
net asset value plus a sales charge of 1.0%.
Unitholders may make additional purchases, other than those made by unit trust
distributions, at the Fund's regular offering price.
CUMULATIVE PURCHASE PRIVILEGE
The Cumulative Purchase Privilege lets you add the value of all your existing FI
Fund accounts (Class A and Class B shares) to the amount of your next Class A
share investment to reach sales charge discount breakpoints. For example, if the
combined value of your existing FI Fund accounts is $25,000, your next purchase
will be eligible for a sales charge discount at the $25,000 level. Cumulative
Purchase discounts are applied to purchases as indicated in the first column of
the Class A Sales Charge table.
All your accounts registered with the same social security number will be linked
together under the Cumulative Purchase Privilege. In addition, your spouse's
accounts and custodial accounts held for minor children residing at your home
can also be linked to your accounts upon request.
8
<PAGE>
..Conservator accounts are linked to the social security number of the ward,
not the conservator.
- -Sole proprietorship accounts are linked to personal/family accounts only if the
account is registered with a social security number, not an employer
identification number ("EIN").
- -estamentary trusts and living trusts may be linked to other accounts registered
under the same trust EIN, but not to the personal accounts of the trustee(s).
- -Estate accounts may only be linked to other accounts registered under the same
EIN of the estate or social security number of the decedent.
- -Church and religious organizations may link accounts to others registered with
the same EIN but not to the personal accounts of any member.
LETTER OF INTENT
A Letter of Intent ("LOI") lets you purchase at a discounted sales charge level
even though you do not yet have sufficient investments to qualify for that
discount level. An LOI is a commitment by you to invest a specified dollar
amount during a 13-month period. The amount you agree to invest determines the
sales charge you pay. Under an LOI, you can reduce the initial sales charge on
Class A share purchases based on the total amount you agree to invest in both
Class A and Class B shares during the 13 month period. Purchases made up to 90
days before the date of the LOI may be included.
By purchasing under an LOI, you acknowledge and agree to the following:
- -You authorize First Investors to reserve 5% of your total intended investment
in shares held in escrow in your name until the LOI is completed.
- -First Investors is authorized to sell any or all of the escrow shares to
satisfy any additional sales charges owed in the event you do not fulfill the
LOI.
- -Although you may exchange all your shares, you may not sell the reserve shares
held in escrow until you fulfill the LOI or pay the higher sales charge.
|_| CLASS B SHARES
Class B shares are sold without an initial sales charge, putting all your money
to work for you immediately. If you redeem Class B shares within 6 years of
purchase, a CDSC will be imposed. The CDSC declines from 4% to 0% over a 6-year
period, as shown in the chart below. Class B share money market fund shares are
not sold directly. They can only be acquired through an exchange from another
Class B fund account. Class B shares, and the dividend and distribution shares
they earn, automatically convert to Class A shares after 8 years, reducing
future annual expenses.
Generally, you should consider purchasing Class B shares if you intend to invest
less than $250,000 and you would rather pay higher ongoing expenses than to pay
a sales charge at the outset.
CLASS B SALES CHARGES
THE CDSC DECLINES OVER TIME AS SHOWN IN THE TABLE BELOW:
Year 1 2 3 4 5 6 7+
CDSC 4% 4% 3% 3% 2% 1% 0%
9
<PAGE>
If shares redeemed are subject to a CDSC, the CDSC will be based on the lesser
of the original purchase price or redemption price. There is no CDSC on shares
acquired through dividend and capital gains reinvestment. We call these "free
shares."
Anytime you sell shares, your shares will be redeemed in the following manner to
ensure that you pay the lowest possible CDSC:
FIRST Class B shares representing dividends and capital gains that are not
subject to a CDSC. SECOND Class B shares held more than seven years which are
not subject to a CDSC.
THIRD Class B shares held longest which will result in the lowest CDSC.
For purposes of calculating the CDSC, all purchases made during the calendar
month are deemed to have been made on the first business day of the month at the
average cost of the shares purchased during that period.
SALES CHARGE WAIVERS ON
CLASS B SHARES
The CDSC on Class B shares does not apply to:
1: Appreciation on redeemed shares above their original purchase price.
2: Redemptions due to death or disability (as defined in section 72(m)(7) of the
Internal Revenue Code) requested within one year of death. Additional
documentation is required.
3: Distributions from employee benefit plans due to termination or plan
transfer.
4: Redemptions to remove an excess contribution from an IRA or qualified
retirement plan.
5: Distributions upon reaching required minimum age 70 1/2 provided you have
held the shares for at least three years.
6: Annual redemptions of up to 8% of your account's value redeemed by a
Systematic Withdrawal Plan. Free shares not subject to a CDSC will be redeemed
first and will count towards the 8% limit.
7: Shares redeemed from advisory accounts managed by or held by the Fund's
investment advisor or any of its affiliates.
8: Tax-free returns of excess contributions from employee benefit plans.
9: Redemptions of non-retirement shares purchased with proceeds from the sale of
shares of another fund group between April 29, 1996 and June 30, 1996 that did
not pay a sales charge (other than money market fund accounts or retirement plan
accounts).
10: Redemptions by the Fund when the account falls below the minimum.
11: Redemptions to pay account fees. Include a written statement with your
redemption request explaining which exemption applies. If you do not include
this statement we cannot guarantee that you will receive the waiver.
|_| HOW TO PAY
You can invest using one or more of the following options:
- -CHECK
You can buy shares by writing a check payable to First Investors Corporation. If
you are opening a new fund account, your check must meet the fund minimum. When
making purchases to an existing account, remember to include your fund account
number on your check.
- -AUTOMATIC INVESTMENT PROGRAMS We offer several automatic investment programs to
simplify investing.
MONEY LINE:
With our Money Line program, you can open an account with as little as $50 a
month or $600 each year in a FI Fund account by transferring funds
electronically from your bank account.
10
<PAGE>
Money Line allows you to select the payment amount and frequency that is best
for you. You can make automatic investments bi-weekly, semimonthly, monthly,
quarterly, semi-annually, or annually.
TIMING OF PURCHASES:
The date you select as your investment date is the date on which shares will be
purchased. THE PROCEEDS MUST BE AVAILABLE IN YOUR BANK ACCOUNT TWO BUSINESS DAYS
PRIOR TO THE INVESTMENT DATE.
HOW TO APPLY:
1Complete the Electronic Funds Transfer ("EFT") section of the application to
provide complete bank information and authorize EFT fund share purchases. Attach
a voided check. A signature guarantee of all shareholders and bank account
owners is required.
PLEASE ALLOW AT LEAST 10 BUSINESS DAYS FOR INITIAL PROCESSING.
2Complete the Money Line section of the application to specify the amount,
frequency and date of the investment.
3Submit the paperwork to your registered representative or send it to
Administrative Data Management Corp., Attn: Control Dept., 581 Main Street,
Woodbridge, NJ 07095-1198.
HOW TO CHANGE:
Provided you have telephone privileges, you may call Shareholder Services at
1 (800) 423-4026 to:
- -Increase the payment up to $999.99.
- -Decrease the payment.
- -Discontinue the service.
To change investment amounts, reallocate or cancel Money Line, you must notify
us at least 3 business days prior to the investment date.
You must send a signature guaranteed written request to Administrative Data
Management Corp. to:
- -Increase the payment to $1,000 or more.
- -Change bank information.
A medallion signature guarantee (see Signature
Guarantee Policy) is required to increase a Money Line payment to $2,500 or
more. Changing banks or bank account numbers requires 10 days notice. Money Line
service will be suspended upon notification that all account owners are
deceased.
AUTOMATIC PAYROLL INVESTMENT:
With our Automatic Payroll Investment service ("API") you can systematically
purchase shares by salary reduction. To participate, your employer must offer
direct deposit and permit you to electronically transfer a portion of your
salary. Contact your company payroll department to authorize the salary
reductions. If not available, you may consider our Money Line program.
Shares purchased through API are bought at the offering price on the day the
electronic transfer is received by the Fund.
HOW TO APPLY:
1: Complete an API Application.
2: Complete an API Authorization Form.
3: Submit the paperwork to your registered representative or send it to
Administrative Data Management Corp., Attn: Control Dept., 581 Main Street,
Woodbridge, NJ 07095-1198.
WIRE TRANSFERS:
You may purchase shares via a federal funds wire transfer from your bank account
into your EXISTING First Investors account. Federal fund wire transfer proceeds
are not subject to a holding period and are available to you immediately upon
receipt.
YOU MUST CALL US AT 1 (800) 423-4026 TO ADVISE US OF AN INCOMING FEDERAL FUND
WIRE and provide us with the federal funds wire transfer confirmation number,
11
<PAGE>
the amount of the wire, and the fund account number.
To wire federal funds to an existing First Investors account (other than money
markets), instruct your bank to wire your investment to:
FIRST FINANCIAL SAVINGS BANK, S.L.A.
ABA # 221272604 ACCOUNT # 0306142
YOUR NAME
YOUR FIRST INVESTORS
FUND ACCOUNT #
To wire funds to an existing First Investors money market account, instruct your
bank to wire your investment, as applicable, to:
CASH MANAGEMENT FUND
BANK OF NEW YORK
ABA #021000018
ACCOUNT 89000005696
YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
TAX-EXEMPT MONEY MARKET FUND
BANK OF NEW YORK
ABA #021000018
ACCOUNT 8900023198
YOUR NAME
YOUR FIRST INVESTORS ACCOUNT #
DISTRIBUTION CROSS-INVESTMENT:
You can invest the dividends and capital gains from one fund account, excluding
the money market funds, into another fund account in the same class of shares.
The shares will be purchased at the net asset value on the day after the record
date of the distribution.
- -You must invest at least $50 a month or $600 a year into a NEW account.
- -A signature guarantee is required if the ownership on both accounts is not
identical.
You may establish a Distribution Cross-Investment service by contacting your
registered representative or calling Shareholder Services at 1 (800) 423-4026.
SYSTEMATIC WITHDRAWAL PLAN PAYMENT INVESTMENTS:
You can invest Systematic Withdrawal Plan payments (see How to Sell Shares) from
one fund account in shares of another fund account.
Payments are invested without a sales charge.
A signature guarantee is required if the ownership on both accounts is not
identical.
Both accounts must be in the same class of shares.
You must invest at least $600 a year if into a new account.
You can invest on a monthly, quarterly, semi-annual, or annual basis.
Redemptions are suspended upon notification that all account owners are
deceased. Service will recommence upon receipt of written alternative payment
instructions and other required documents from the decedent's legal
representative.
HOW TO SELL SHARES
You can sell your shares on any day the New York Stock Exchange is open for
regular trading. In the mutual fund industry, a sale is referred to as a
"redemption." Redemption proceeds are generally mailed within three days. If the
shares being redeemed were purchased by check, payment may be delayed to verify
that the check has been honored, which may take up to 15 days from the date of
purchase. Shareholders may not redeem shares by telephone or electronic funds
transfer unless the shares have been owned for at least 15 days.
Redemptions of shares are not subject to the 15 day verification period if the
shares were purchased via:
- -Automatic Payroll Investment
- -FIC registered representative payroll checks
- -First Investors Life Insurance Company checks
- -Federal funds wire payments.
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|_| REDEMPTION OPTIONS
For trusts, estates, attorneys-in-fact, corporations, partnerships, and other
entities, additional documents are required to redeem shares. Call Shareholder
Services at 1 (800) 423-4026 for more information.
WRITTEN REDEMPTIONS
You can write a letter of instruction or contact your First Investors registered
representative for a liquidation request form. A written liquidation request in
good order must include:
1The name of the fund;
2Your account number;
3The dollar amount, number of shares or percentage of the account you want to
redeem;
4Share certificates (if they were issued to you);
5Original signatures of all owners exactly as your account is registered;
6Signature guarantees, if required (see Signature Guarantee Policy).
Written redemption requests should be mailed to:
ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET
WOODBRIDGE, NJ 07095-1198
TELEPHONE REDEMPTIONS
You may redeem shares which have been owned for at least 15 days by calling our
Special Services Department at 1 (800) 342-6221 from 9:00 a.m. to 5:00 p.m.,
EST, provided:
- -Telephone privileges are available for your account registration (see Telephone
Privileges);
- -You have telephone privileges (see Telephone Privileges);
- -You do not hold share certificates (issued shares);
The redemption check is
made payable to the registered owner(s) or pre-designated bank;
- -The redemption check is mailed to your address of record;
- -Your address of record has not changed within the past 60 days;
- -The redemption amount is $50,000 or less; and
- -The redemption amount, combined with the amount of all telephone
redemptions made within the previous 30 days does not exceed $100,000.
ELECTRONIC FUNDS TRANSFER
The Electronic Funds Transfer ("EFT") service allows you to redeem shares and
electronically transfer proceeds to your bank account.
YOU MUST ENROLL IN THE ELECTRONIC FUNDS TRANSFER SERVICE AND PROVIDE COMPLETE
BANK ACCOUNT INFORMATION BEFORE USING THE PRIVILEGE. Signature guarantees of all
shareholders and all bank account owners are required. Please allow at least 10
business days for initial processing. We will send any payments made during that
time to your address of record. Call your registered representative or
Shareholder Services at 1 (800) 423-4026 for an application.
You may call Shareholder Services or send written instructions to Administrative
Data Management Corp. to request an EFT redemption of shares which are held at
least 15 days. Each EFT redemption:
1: Must be electronically transferred to your pre-designated bank account;
2: Must be at least $500;
3: Cannot exceed $50,000;
4: Cannot exceed $100,000 when added to the total amount of all EFT redemptions
made within the previous 30 days.
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If your redemption does not qualify for an EFT redemption, you may request to
have the redemption proceeds mailed to you.
The Electronic Funds Transfer service may also be used to purchase shares (see
Money Line) and transfer systematic withdrawal payments (see Systematic
Withdrawal Plans) and dividend distributions (see Other Services) to your bank
account.
SYSTEMATIC WITHDRAWAL PLANS
Our Systematic Withdrawal Plan allows you to redeem a specific dollar amount or
percentage from your account on a regular basis. Your payments can be mailed to
you or a pre-authorized payee by check, transferred to your bank account
electronically (if you have enrolled in the EFT service) or invested in shares
of another FI fund in the same class of shares through our Systematic Withdrawal
Plan Payment investment service (see How to Buy Shares).
You can receive payments on a monthly, quarterly, semi-annual, or annual basis.
Your account must have a value of at least $5,000 in non-certificated shares
("unissued shares") shares. The minimum Systematic Withdrawal Plan payment is
$25 (waived for Required Minimum Distributions on retirement accounts or FIL
premium payments).
Once you establish the Systematic Withdrawal Plan, you should not make
additional investments into this account (except money market funds). Buying
shares during the same period as you are selling shares is not advantageous to
you because of sales charges.
If you own Class B shares, you may establish a Systematic Withdrawal Plan and
redeem up to 8% of the value of your account annually without a CDSC.
If you own Class B shares of a retirement account and you are receiving your
Required Minimum Distribution through a Systematic Withdrawal Plan, up to 8% of
the value of your account may be redeemed annually without a CDSC. However, if
your Required Minimum Distribution exceeds the 8% limit, the applicable CDSC
will be charged if the additional shares were held less than 3 years and you
have not reached age 70 1/2.
To establish a Systematic Withdrawal Plan, complete the appropriate section of
the account application or contact your registered representative or call
Shareholder Services at 1 (800) 423-4026.
|_| EXPEDITED WIRE REDEMPTIONS
(MONEY MARKET FUNDS ONLY)
Enroll in our Expedited Redemption service to wire proceeds from your FI money
market account to your bank account. Call Shareholder Services at 1 (800)
423-4026 for an application or to discuss specific requirements.
- -Each wire under $5,000 is subject to a $10 fee.
- -Six wires of $5,000 or more are permitted without charge each month. Each
additional wire is $10.00.
- -Wires must be directed to your pre-authorized bank account.
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<PAGE>
HOW TO EXCHANGE SHARES
The exchange privilege gives you the flexibility to change investments as your
goals change without incurring a sales charge. Since an exchange is a redemption
and a purchase, it creates a gain or loss which is reportable for tax purposes.
You should consult your tax advisor before requesting an exchange. Read the
prospectus of the FI Fund you are purchasing carefully. Review the differences
in objectives, policies, risk, privileges and restrictions.
Exchange Methods
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
<S> <C>
Through Your FI
Registered Representative Call your registered representative.
- --------------------------------------------------------------------------------
By Phone Call Special Services from 9:00 a.m. to 5:00 p.m.,
(800) 342-6221 EST Orders received after the close of the New
Exchange, usually 4:00 York Stock, p.m. EST, are processed the following
business day.
1. You must have telephone privileges (see
Telephone Transactions)
2. Certificate shares cannot be exchanged by phone.
3. For trusts, estates, attorneys-in-fact,
corporations, partnerships, and other entities,
additional documents are required.
- --------------------------------------------------------------------------------
By Mail To: 1. Send us written instructions signed by all
owners account ADM exactly as the account is
Attn: Exchange Dept. registered.
581 Main Street 2. Include your fund account number.
Woodbridge, N.J. 07095-1198 3. Indicate either the dollar amount, number of
shares or percent of the account you want to
exchange.
4. Specify the existing account number or the name
of the new Fund you are exchanging into.
5. Include any outstanding share certificates for
the shares you want to exchange.
6. For trusts, estates, attorneys-in-fact,
corporations, partnerships, and other entities,
additional documents are required. Call Shareholder
Services at 1 (800) 423-4026.
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</TABLE>
|_| EXCHANGE CONDITIONS
1: You may only exchange shares within the same Class.
2: Exchanges can only be made into identically owned accounts.
3: Partial exchanges into a new fund account must meet the new fund's minimum
initial investment.
4: The fund you are exchanging into must be eligible for sale in your state.
5: If your request does not clearly indicate the amount to be exchanged or the
accounts involved, no shares will be exchanged.
6: Amounts exchanged from a non-money market fund to a money market fund may be
exchanged back at net asset value. Dividends earned from money market fund
shares will be subject to a sales charge if they are exchanged into Class A
shares of another fund.
7: If you are exchanging from a money market fund to a fund with a sales charge,
there will be a sales charge on any shares (other than those acquired by
dividend or capital gains distributions) if the shares have not previously been
subject to a sales charge. Your request must be in writing and include a
statement acknowledging that a sales charge will be paid. If you exchange Class
B shares of a fund for shares of a Class B money market fund, the CDSC will not
be imposed and the holding period used to calculate the CDSC will carry over to
the acquired shares.
8: FI Funds reserve the right to reject any exchange order which in the opinion
of the Fund is part of a market timing strategy. In the event that an exchange
is rejected, neither the redemption nor the purchase side of the exchange will
be affected.
|_| EXCHANGING FUNDS WITH AUTOMATIC INVESTMENTS
OR SYSTEMATIC WITHDRAWALS
Let us know if you want to continue automatic investments into the original fund
or the fund you are exchanging into ("receiving fund") or if you want to change
the amount or allocation into both. Also inform us if you wish to continue,
terminate, or change a preauthorized systematic withdrawal. Without specific
instructions, we will amend account privileges as outlined below:
EXCHANGE EXCHANGE EXCHANGE A
ALL SHARES TO ALL SHARES TO PORTION OF
ONE FUND MULTIPLE SHARES TO ONE OR
FUNDS MULTIPLE FUNDS
MONEY LINE ML moves to ML stays with ML stays with
(ML) Receiving Fund Original Fund Original Fund
AUTOMATIC PAYROLL
INVESTMENT (API) API moves to API Reallocated API stays with
Receiving Fund Proportionally to Original Fund
Receiving Funds
SYSTEMATIC SWP moves to SWP SWP stays
WITHDRAWALS Receiving Fund Canceled with Original (SWP)
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<PAGE>
WHEN AND HOW ARE FUND SHARES PRICED?
Each FI Fund prices its shares each day that the New York Stock Exchange
("NYSE") is open for trading. The share price is calculated as of the close of
trading on the NYSE (generally 4:00 p.m., EST). These days are referred to as
"Trading Days" in this Manual.
Each Fund calculates the net asset value of each class of its shares separately
by taking the total value of class assets, subtracting class expenses, and
dividing the difference by the total number of shares in the class. The price
that you will pay for a share is the NAV plus any applicable front-end sales
charge. You receive the NAV price if you redeem or exchange your shares, less
any applicable CDSC.
Fund prices are on our Website (www.firstinvestors.com) the next day. The prices
for our larger funds are also reported in many newspapers, including The Wall
Street Journal and The New York Times. Special pricing procedures are employed
during emergencies. For a description of these procedures you can request, free
of charge, a copy of a Statement of Additional Information.
HOW ARE PURCHASE,
REDEMPTION, AND
EXCHANGE ORDERS
PROCESSED AND PRICED?
The processing and price for a purchase, redemption or exchange depends upon how
your order is placed. As indicated below, special rules apply to money market
transactions.
|_| PURCHASES
Purchases that are made by written application or order are processed when they
are received in "good order" by our Woodbridge, NJ office. To be in good order,
all required paperwork must be completed and payment received. If your order is
received prior to the close of trading on the NYSE, it will receive that day's
price (except in the case of the money market funds which are discussed below).
This procedure applies whether your purchase order is given to your registered
representative or mailed directly by you to our Woodbridge, NJ office.
As described previously "How to Buy Shares," certain types of purchases can only
be placed by written application. For example, purchases in connection with the
opening of retirement accounts may only be made by written application.
Furthermore, rollovers of retirement accounts will be processed only when we
have received both written application and the proceeds of the rollover. Thus,
for example, if it takes 30 days for another fund group to send us the proceeds
of a retirement account, your purchase of First Investors funds will not occur
until we receive the proceeds.
Some types of purchases may be phoned or electronically transmitted to us by
your broker/dealer. If you give your order to a First Investors registered
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<PAGE>
representative before the close of trading on the NYSE and the order is phoned
to our Woodbridge, NJ office prior to 5:00 p.m., EST, your shares will be
purchased at that day's price (except money market funds which are discussed
below). If you are buying a First Investors Fund through a broker-dealer other
than First Investors, other requirements may apply. Consult with your
broker-dealer about its requirements. Payment is due within three business days
of placing an order by phone or electronic means or the trade may be cancelled.
(In such event, you will be liable for any loss resulting from the
cancellation.) To avoid cancellation of your orders, you may arrange to open a
money market account and use it to pay for subsequent purchases.
Purchases made pursuant to our Automatic Investment Programs are processed as
follows:
- -Money Line purchases are processed on the dates you select on your application.
- -Automatic Payroll Investment Service purchases are processed on the dates that
we receive funds from your employer.
|_| REDEMPTIONS
As described previously in "How To Sell Shares", certain redemption orders may
only be made by written instructions or application. If you elect to receive
Telephone Privileges, most redemptions can be made by phone by you or your
registered representative.
Written redemption orders will be processed when received in good order in our
Woodbridge, NJ office. Phone redemption orders will be processed when received
in our Woodbrige, NJ office.
If your redemption order is received prior to the close of trading on the NYSE,
you will receive that day's price (except in the case of money marketfunds which
are discussed below). If you are redeeming through a broker-dealer other than
First Investors, other requirements may apply. Consult with your broker-dealer
about its requirements.
|_| EXCHANGES
Exchanges can generally be made by written instructions or, if you have elected
to receive Telephone Privileges, by phone by you or your registered
representative. Exchange orders are processed when we receive them in good order
in our Woodbridge, NJ office.
Exchange orders received prior to the close of trading on the NYSE will be
processed at that day's prices (except in the case of exchanges into or out of
money market funds which are discussed below).
|_| SPECIAL RULES FOR MONEY MARKET FUNDS.
A money market fund share purchase will not be made until we receive the funds
for the purchase. The funds for the purchase will not be deemed to have been
received until the morning of the next Trading Day following the Trading Day on
which your purchase check is received in our Woodbridge, NJ office. If a check
is received in our Woodbridge, NJ office after the close of regular trading on
the NYSE, the funds for the purchase will not be deemed to have been received
until the morning of the second following Trading Day.
If you make your purchase by wire transfer prior to 12:00 p.m., EST, and you
have previously advised us that the wire is on the way, the funds for the
purchase will be deemed to have been received on that same day. You must call
beforehand and give us your name, account number, the amount of the wire, and a
federal reference number documenting the transfer. If we fail to receive such
advance notification, the funds for your purchase will not be deemed to have
been received until the morning of the next Trading Day following receipt of the
federal wire.
Purchases by Money Line and Automatic Payroll Investment are processed in the
same manner as those in other Funds.
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<PAGE>
Requests for redemptions or exchanges out of or into our money market funds must
be received in writing or by phone prior to 12:00 p.m., EST, on a Trading Day,
to be processed the same day. Redemption or exchange orders received after 12:00
p.m., EST, but before the close of regular trading on the NYSE, will be
processed on the morning of the following Trading Day.
|_| ORDERS PLACED VIA FIRST INVESTORS REGISTERED REPRESENTATIVES
All orders placed through a First Investors registered representative must be
reviewed and approved by a principal officer of the branch office before being
mailed or transmitted to the Woodbridge, NJ office.
|_| ORDERS PLACED VIA DEALERS
It is the responsibility of the Dealer to forward or transmit orders to the Fund
promptly and accurately. A fund will not be liable for any change in the price
per share due to the failure of the Dealer to place the order in a timely
fashion. Any such disputes must be settled between you and the Dealer.
RIGHT TO REJECT
PURCHASE OR
EXCHANGE ORDERS
A fund reserves the right to reject or restrict any specific purchase request if
the fund determines that doing so is in the best interest of the fund and its
shareholders. Investments in a fund are designed for long-term purposes and are
not intended to provide a vehicle for short-term market timing. The funds also
reserve the right to reject any exchange that in the funds opinion is part of a
market timing strategy. In the event that a fund rejects an exchange request,
neither the redemption nor the purchase side of the exchange will be processed.
SIGNATURE GUARANTEE POLICY
A signature guarantee protects you from the risk of a fraudulent signature and
is generally required for non-standard and large dollar transactions. A
signature guarantee may be obtained from your First Investors registered
representative or eligible guarantor institutions including banks, savings
associations, credit unions and brokerage firms which are members of the
Securities Transfer Agents Medallion Program ("STAMP"), the New York Stock
Exchange Medallion Signature Program ("MSP"), or the Stock Exchanges Medallion
Program ("SEMP"). Please note that a notary public stamp or seal is not
acceptable. The words "Signature Guaranteed" must appear beside the signature of
the guarantor.
|_| SIGNATURE GUARANTEES ARE REQUIRED:
1: For redemptions over $50,000.
2: For redemption checks made payable to any person(s) other than the registered
shareholder(s) or a major financial institution for the benefit of the
registered shareholder(s).
3: For redemption checks mailed to an address other than the address of record
(unless the check is mailed to a financial institution on your behalf).
4: For redemptions when the address of record has changed within 60 days of the
request.
5: When a stock certificate is mailed to an address other than the address of
record or to the dealer on the account.
6: When shares are transferred to a new registration.
7: When issued shares are redeemed.
8: To establish any EFT service.
19
<PAGE>
9: For requests to change the address of record to a P.O. box or a "c/o" street
address.
10: If multiple account owners of one account give inconsistent instructions.
11: When a transaction requires additional legal documentation.
12: When the authority of a representative of a corporation, partnership, trust,
or other entity has not been satisfactorily established.
13: When an address on an account which was coded "Do Not Mail" to suppress
check and dividend mailings due to a previously unknown address is updated.
14: Any other instance whereby a fund or its transfer agent deems it necessary
as a matter of prudence.
TELEPHONE PRIVILEGES - 1 (800) 342-6221
You automatically receive telephone privileges when you open a First Investors
individual, joint, or custodial account unless you decline the option on your
account application or send the Fund written instructions. For trusts, estates,
attorneys-in-fact, corporations, partnerships, and other entities, additional
documents are required. Call Shareholder Services at 1 (800) 423-4026 for
assistance.
Telephone privileges allow you to exchange or redeem shares and authorize other
transactions by calling Special Services at 1 (800) 342-6221 from 9:00 a.m. to
5:00 p.m., EST, on any day the NYSE is open. Your First Investors registered
representative may also use telephone privileges to execute your transactions.
_
|_| SECURITY MEASURES
For your protection, the following security measures are taken:
1: Telephone requests are recorded to verify accuracy.
2: Some or all of the following information is obtained:
- -Account number
- -Address
- -Social security number -Other information as deemed necessary
3: A written confirmation of each transaction is mailed to you.
We will not be liable for following instructions if we reasonably believe the
instructions are genuine based on our verification procedures.
|_| ELIGIBILITY
- -Non-retirement Accounts:
You can exchange or redeem shares of any non-retirement account by phone. Shares
must be owned for 15 days for telephone redemption. Telephone exchanges and
redemptions are not available on guardianship and conservatorship accounts.
RETIREMENT ACCOUNTS:
You can exchange between shares of any participant directed IRA, 403(b) or
401(k) Simplifier plan where First Financial Savings Bank, SLA is Custodian. You
may also exchange shares from an individually registered non-retirement account
to an IRA account registered to the same owner (provided an IRA application is
on file). Telephone exchanges are permitted on 401(k) Flexible plans, money
purchase pension plans and profit sharing plans if a First Investors Qualified
Retirement Plan Application is on file with the fund. Contact your First
Investors registered representative or call Shareholder Services at 1 (800)
423-4026 to obtain a Qualified Retirement Plan Application. Telephone
redemptions are not permitted on First Investors retirement accounts.
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<PAGE>
TELEPHONE EXCHANGES & REDEMPTIONS
SPECIAL SERVICES:
1 (800) 342-6221
SHAREHOLDER SERVICES:
1 (800) 423-4026
PROVIDED YOU HAVE NOT DECLINED TELEPHONE PRIVILEGES, CALL US....
TO UPDATE OR CORRECT...
- -Your address or phone number.
- -Your birth date (important for retirement distributions
- -Your distribution option to reinvest or pay in cash (non-retirement accounts
only) or initiate cross reinvestment of dividends.
- -The amount of your Money Line or Automatic Payroll Investment payment.
- -The allocation of your Money Line or Automatic Payroll Investment payment.
- -The amount of your Systematic Withdrawal payment.
TO REQUEST...
- -A duplicate copy of a statement or tax form.
- -A history of your account (the fee can be debited from your non-retirement
account).
- -A share certificate to be mailed to your address of record.
- -A stop payment on a dividend, redemption or money market check.
- -Suspension (up to six months) or cancellation of Money Line.
- -Cancellation of your Systematic Withdrawal Plan.
- -Cancellation of cross-reinvestment of dividends.
- -Money market fund draft checks.
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OTHER SERVICES
_
|_| REINVESTMENT PRIVILEGE
If you sell some or all of your Class A or Class B shares, you can reinvest any
or all of the proceeds in the same class of shares of any FI fund within six
months of the redemption without a sales charge.
If you reinvest proceeds into a new fund account, you must meet the fund's
minimum initial investment requirement.
If you reinvest all the proceeds from a Class B share redemption, you will be
credited, in additional shares, for the full amount of the CDSC. If you reinvest
a portion of a Class B share redemption, you will be credited with a pro-rated
percentage of the CDSC.
For more information, call Shareholder Services at 1 (800) 423-4026.
_
|_| CERTIFICATE SHARES
Every time you make a purchase of Class A shares, we will credit shares to your
fund account. We do not issue shares certificates unless you specifically
request them. Certificates are not issued on any Class B shares or on Class A
money market funds.
Having us credit shares on your behalf eliminates the expense of replacing lost,
stolen, or destroyed certificates. If a certificate is lost, stolen, or damaged,
you will be charged a replacement fee of the greater of 2% of the current value
of the certificated shares or $25.
In addition, certificated shares cannot be redeemed or exchanged until they are
returned with your transaction request. The share certificate must be properly
endorsed and signature guaranteed.
_
|_| MONEY MARKET FUND DRAFT CHECKS
Free draft check writing privileges are available when you open a First
Investors Cash Management Fund or a First Investors Tax Exempt Money Market Fund
account. Checks may be written for a minimum of $500. Draft checks are not
available for Class B share accounts, retirement accounts, guardianships and
conservatorships. Complete the Money Market Fund Check Redemption section of the
account application to apply for draft checks. To order additional checks, call
Shareholder Services at 1 (800) 423-4026.
Additional documentation is required to establish check writing privileges for
trusts, corporations, partnerships and other entities. Call Shareholder Services
at 1 (800) 423-4026 for further information.
FEE TABLE
Call Shareholder Services at 1 (800) 423-4026 or send your request to FIC, Attn:
Correspondence Dept., 581 Main Street, Woodbridge N.J. 07095-1198 to request a
copy of the following records:
ACCOUNT HISTORY STATEMENTS
1974 - 1982* $10 per year fee
1983 - present $5 total fee for all years
Current Year Free
Prior Year Free
Current &
Two Prior Years Free
* ACCOUNT HISTORIES ARE NOT AVAILABLE PRIOR TO 1974.
CANCELLED CHECKS
There is a $10 fee for a copy of a cancelled dividend, liquidation, or
investment check requested. There is a $15 fee for a copy of a cancelled money
market draft check.
DUPLICATE TAX FORMS
Current Year Free
Prior Year(s) $7.50 per tax form
per year
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_
|_| RETURN MAIL
If mail is returned to the fund marked undeliverable by the U.S. Postal Service
after two consecutive mailings, and the fund is unable to obtain a current
shareholder address, the account status will be changed to "Do Not Mail" to
discontinue future mailings and prevent unauthorized persons from obtaining
account information.
You can remove the "Do Not Mail" status on your account by submitting written
instructions including your current address signed by all shareholders with a
signature guarantee (see Signature Guarantee Policy). Additional requirements
may apply for certain accounts. Call Shareholder Services at 1 (800) 423-4026
for more information.
Returned dividend checks and other distributions will be
reinvested in the fund when an account's status has been changed to "Do Not
Mail". No interest will be paid on outstanding checks prior to reinvestment. All
future dividends and other distributions will be reinvested in additional shares
until new instructions are provided. If you cannot be located within a period of
time mandated by your state of residence your fund shares could be turned over
to your state (in other words forfeited).
Prior to turning over assets to your state, the fund will seek to obtain a
current shareholder address in accordance with Securities and Exchange
Commission rules. A search company may be employed to locate a current address.
The fund may deduct the costs associated with the search from your account.
_
|_| TRANSFERRING SHARES
A transfer is a change of share ownership from one customer to another. Unlike
an exchange, transfers occur within the same fund. You can transfer your shares
at any time.
To transfer shares, submit a letter of instruction including:
- -Your account number.
- -Dollar amount, percentage, or number of shares to be
transferred.
- -Existing account number receiving the shares (if any).
- -The name(s), registration, and taxpayer identification number of the customer
receiving the shares.
- -The signature of each account owner requesting the transfer with signature
guarantee(s).
In addition, we will request the transferee to complete a Master Account
Agreement to establish a brokerage account with First Investors Corporation and
validate his or her social security number to avoid back-up withholding. If the
transferee declines to complete an MAA, all transactions in the account must be
on an unsolicited basis and the account will be so coded. Depending upon your
account registration, additional documentation may be required to transfer
shares. Transfers due to the death or disability of a shareholder also require
additional documentation. Please call our Shareholder Services Department at 1
(800) 423-4026 for specific transfer requirements before initiating a request.
A transfer is a change of ownership and may trigger a taxable event. You should
consult your tax advisor before initiating a transfer.
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ACCOUNT STATEMENTS
_
|_| TRANSACTION CONFIRMATION STATEMENTS
You will receive a confirmation statement immediately after most transactions.
These include:
- -shareorder purchases
- -check investments
- -redemptions
- -exchanges
- -transfers
- -systematic withdrawals
Money Line and Automatic Payroll Investment purchases are not confirmed for each
transaction. They will appear on your next regularly scheduled confirmation
statement (see Dividend Schedule under "Dividends and Distributions") or
quarterly, whichever is sooner.
A separate confirmation statement is generated for each fund account you own. It
provides:
- -Your fund account number.
- -The date of the transaction.
- -A description of the transaction (purchase, redemption, etc.).
- -The number of shares bought or sold for the transaction.
- -The dollar amount of the transaction.
- -The dollar amount of the dividend payment (if applicable).
- -The total share balance in the account.
- -The dollar amount of any dividends or capital gains paid.
- -The number of shares held by you, held for you (including escrow shares), and
the total number of shares you own.
The confirmation statement also provides a perforated Investment Stub with your
preprinted name, registration, and fund account number for future investments.
|_| MASTER ACCOUNT STATEMENTS
Each month (if you own a fund that pays monthly dividends) or quarterly (for all
other funds) you will receive a Master Account Statement summarizing the
activity for all your identically owned First Investors fund accounts. The
Master Account Statement will also include a recap of any First Investors Life
Insurance and Executive Investors Trust accounts you may own. Joint accounts
registered under your taxpayer identification number will appear on a separate
Master Account Statement but may be mailed in the same envelope upon request.
The Master Account Statement provides the following information for each First
Investors fund you own:
- -fund name
- -fund's current market value
- -total distributions paid year-to-date
- -total number of shares owned
|_| ANNUAL AND SEMI-ANNUAL REPORTS
You will also receive an Annual and a Semi-Annual Report. These financial
reports show the assets, liabilities, revenues, expenses, and earnings of the
fund as well as a detailed accounting of all portfolio holdings. You will
receive one report per household.
24
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
|_| DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
For funds that declare daily dividends, you start earning dividends on the day
your purchase is made. For FI money market funds, you start earning dividends on
the day federal funds are credited to your fund account. The funds declare
dividends from net investment income and distribute the accrued earnings to
shareholders as noted below:
DIVIDEND PAYMENT SCHEDULE
MONTHLY: QUARTERLY: ANNUALLY (IF ANY):
Cash Management Fund Blue Chip Fund Global Fund Fund for Income Growth & Income
Fund Special Situations Fund Government Fund Total return Fund Mid-Cap
Opportunity Fund Insured Intermediate Tax-Exempt Utilities Income Fund Insured
Tax Exempt Fund Investment Grade Fund High Yield Fund Multi-State Insured Tax
Free Fund New York Insured Tax Free Fund Tax-Exempt Money Market Fund
- --------------------------------------------------------------------------------
Capital gains distributions, if any, are paid annually, usually near the end of
the fund's fiscal year. On occasion, more than one capital gains distribution
may be paid during one year.
Dividend and capital gains distributions are automatically reinvested to
purchase additional fund shares unless otherwise instructed. Dividend payments
of less than $5.00 are automatically reinvested to purchase additional fund
shares.
|_| BUYING A DIVIDEND
If you buy shares shortly before the record date of the dividend, the entire
dividend you receive may be taxable even though a part of the distribution is
actually a return of your purchase price. This is called "buying a dividend."
There is no advantage to buying a dividend because a fund's net asset value per
share is reduced by the amount of the dividend.
25
<PAGE>
TAX FORMS
TAX FORM DESCRIPTION MAILED BY
- ----------------------------------------------------------------------------
1099-DIV Consolidated report lists all taxable dividend and January 31
capital gains distributions for all of the
shareholder's accounts. Also includes foreign taxes
paid and any federal income tax withheld due to backup
withholding.
- ----------------------------------------------------------------------------
1099-B Lists proceeds from all redemptions including January 31
systematic withdrawals and exchanges. A separate
form is issued for each fund account. Includes amount
of federal income tax withheld due to backup
withholding.
- ----------------------------------------------------------------------------
1099-R Lists taxable distributions from a retirement January 31
account. A separate form is issued for each fund
account. Includes federal income tax withheld due
to IRS withholding requirements.
- ----------------------------------------------------------------------------
5498 Provided to shareholders who made an annual IRA May 31
contribution or rollover purchase. Also provides
the account's fair market value as of the last
business day of the previous year. A separate form is
issued for each fund account.
- ----------------------------------------------------------------------------
1042-S Provided to non-resident alien shareholders to March 15
report the amount of fund dividends paid and the
amount of federal taxes withheld. A separate form
is issued for each fund account.
- ----------------------------------------------------------------------------
Cost Basis Uses the "average cost -single category" method to January 31
Statement show the cost basis of any shares sold or exchanged.
Information is provided to assist shareholders in
calculating capital gains or losses. A separate
statement, included with Form 1099-B, is issued for
each fund account. This statement is not reported
to the IRS and does not include money market funds
or retirement accounts.
- ----------------------------------------------------------------------------
Tax Savings Consolidated report lists all amounts not subject January 31
Report for to federal, state and local income tax for all
Non-Taxable the shareholder's accounts. Also includes any amounts
Income subject to alternative minimum tax.
- ----------------------------------------------------------------------------
Tax Savings Provides the percentage of income paid by each January 31
Summary fund that may be exempt from state income tax.
THE OUTLOOK
Today's strategies for tomorrow's goals are brought into focus in the OUTLOOK,
the quarterly newsletter of First Investors Corporation. This informative tool
discusses the products and services we offer to help you take advantage of
current market conditions and tax law changes. The OUTLOOK'S straight forward
approach and timely articles make it a valuable resource. As always, your
registered representative is available to provide you with additional
information and assistance. Material contained in this publication should not be
considered legal, financial, or other professional advice.
26
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(a)(i) Articles of Restatement1
(ii) Articles Supplementary1
(b) Amended and Restated By-laws1
(c) Shareholders' rights are contained in (a) Articles FIFTH and
EIGHTH of Registrant's Articles of Restatement dated September
14, 1994, previously filed as Exhibit 99.B1.1 to Registrant's
Registration Statement; (b) Article FOURTH of Registrant's
Articles Supplementary to Articles of Incorporation dated
October 20, 1994, previously filed as Exhibit 99.B1.2 to
Registrant's Registration Statement and (c) Article II of
Registrant's Amended and Restated By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement.
(d) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc.1
(e) Underwriting Agreement between Registrant and First Investors
Corporation.1
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between Registrant and Irving Trust
Company1
(ii) Supplement to Custodian Agreement between Registrant and The
Bank of New York1
(h)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp.1
(ii) Schedule A to Administration Agreement2
(i) Consent of Counsel3
(j)(i) Consent of independent accountants4
(ii) Powers of Attorney1
C-1
<PAGE>
(k) Financial statements omitted from prospectus - none
(l) Initial capital agreements - none
(m)(i) Amended and Restated Class A Distribution Plan1
(ii) Class B Distribution Plan1
(n) Financial Data Schedules4
(o) 18f-3 Plan1
- --------------------
1 Incorporated by reference from Post-Effective Amendment No. 62 to
Registrant's Registration Statement (File No. 2-38309) filed on April 24,
1996.
2 Incorporated by reference from Post-Effective Amendment No. 64 to
Registrant's Registration Statement (File No. 2-38309) filed on May 15,
1997.
3 Incorporated by reference from Post-Effective Amendment No. 65 to
Registrant's Registration Statement (File No. 2-38309) filed on April 29,
1998.
4 To be filed by subsequent amendment.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
There are no persons controlled by or under common control with the
Fund.
Item 25. INDEMNIFICATION
Article X, Section 1 of the By-Laws of Registrant provides as
follows:
Section 1. Every person who is or was an officer or director of the
Corporation (and his heirs, executors and administrators) shall be indemnified
by the Corporation against reasonable costs and expenses incurred by him in
connection with any action, suit or proceeding to which he may be made a party
by reason of his being or having been a director or officer of the Corporation,
except in relation to any action, suit or proceeding in which he has been
adjudged liable because of negligence or misconduct, which shall be deemed to
include willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. In the absence of an
adjudication which expressly absolves the director or officer of liability to
the Corporation or its stockholders for negligence or misconduct, within the
meaning thereof as used herein, or in the event of a settlement, each director
or officer (and his heirs, executors and administrators) shall be indemnified by
the Corporation against payments made, including reasonable costs and expenses,
provided that such indemnity shall be conditioned upon the prior determination
by a resolution of two-thirds of the Board of Directors who are not involved in
the action, suit or proceeding that the director or officer has no liability by
reason of negligence or misconduct within the meaning thereof as used herein,
C-2
<PAGE>
and provided further that if a majority of the members of the Board of Directors
of the Corporation are involved in the action, suit or proceeding, such
determination shall have been made by a written opinion of independent counsel.
Amounts paid in settlement shall not exceed costs, fees and expenses which would
have been reasonably incurred if the action, suit or proceeding had been
litigated to a conclusion. Such a determination by the Board of Directors or by
independent counsel, and the payment of amounts by the Corporation on the basis
thereof, shall not prevent a stockholder from challenging such indemnification
by appropriate legal proceedings on the grounds that the person indemnified was
liable to the Corporation or its security holders by reason of negligence or
misconduct within the meaning thereof as used herein. The foregoing rights and
indemnification shall not be exclusive of any other rights to which any officer
or director (or his heirs, executors and administrators) may be entitled to
according to law.
The Registrant's Investment Advisory Agreement provides as follows:
The Manager shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or any Series in connection with
the matters to which this Agreement relate except a loss resulting from the
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
partner, employee, or agent of the Manager, who may be or become an officer,
Board member, employee or agent of the Company shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, partner, employee, or agent or one under the control or direction of
the Manager even though paid by it.
The Registrant's Underwriting Agreement provides as follows:
The Underwriter agrees to use its best efforts in effecting the sale
and public distribution of the shares of the Fund through dealers and to perform
its duties in redeeming and repurchasing the shares of the Fund, but nothing
contained in this Agreement shall make the Underwriter or any of its officers
and directors or shareholders liable for any loss sustained by the Fund or any
of its officers, directors, or shareholders, or by any other person on account
of any act done or omitted to be done by the Underwriter under this Agreement
provided that nothing herein contained shall protect the Underwriter against any
liability to the Fund or to any of its shareholders to which the Underwriter
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties as Underwriter or by reason of its
reckless disregard of its obligations or duties as Underwriter under this
Agreement. Nothing in this Agreement shall protect the Underwriter from any
liabilities which they may have under the Securities Act of 1933 or the
Investment Company Act of 1940.
Reference is hereby made to the Maryland Corporations and
Associations Annotated Code, Sections 2-417, 2-418 (1986).
C-3
<PAGE>
The general effect of this Indemnification will be to indemnify the
officers and directors of the Registrant from costs and expenses arising from
any action, suit or proceeding to which they may be made a party by reason of
their being or having been a director or officer of the Registrant, except where
such action is determined to have arisen out of the willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the director's or officer's office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable. See Item 30 herein.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
First Investors Management Company, Inc. offers investment management
services and is a registered investment adviser. Affiliations of the officers
and directors of the Investment Adviser are set forth in Part B, Statement of
Additional Information, under "Directors and Officers."
Item 27. PRINCIPAL UNDERWRITERS
(a) First Investors Corporation, Underwriter of the Registrant, is
also underwriter for:
First Investors Cash Management Fund, Inc.
First Investors Series Fund
First Investors Government Fund, Inc.
First Investors High Yield Fund, Inc.
First Investors Global Fund, Inc.
First Investors Multi-State Insured Tax Free Fund
First Investors New York Insured Tax Free Fund, Inc.
First Investors Insured Tax Exempt Fund, Inc.
First Investors Tax-Exempt Money Market Fund, Inc.
First Investors U.S. Government Plus Fund
First Investors Series Fund II, Inc.
First Investors Life Variable Annuity Fund A
First Investors Life Variable Annuity Fund C
First Investors Life Variable Annuity Fund D
First Investors Life Level Premium Variable Life Insurance
(Separate Account B)
C-4
<PAGE>
(b) The following persons are the officers and directors of the
Underwriter:
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Glenn O. Head Chairman President
95 Wall Street and Director and Director
New York, NY 10005
Marvin M. Hecker President None
95 Wall Street
New York, NY 10005
John T. Sullivan Director Chairman of the
95 Wall Street Board of Directors
New York, NY 10005
Joseph I. Benedek Treasurer Treasurer
581 Main Street
Woodbridge, NJ 07095
Lawrence A. Fauci Senior Vice President None
95 Wall Street and Director
New York, NY 10005
Kathryn S. Head Vice President Director
581 Main Street and Director
Woodbridge, NJ 07095
Louis Rinaldi Senior Vice None
581 Main Street President
Woodbridge, NJ 07095
Frederick Miller Senior Vice President None
581 Main Street
Woodbridge, NJ 07095
Larry R. Lavoie Secretary and Director
95 Wall Street General Counsel
New York, NY 10005
C-5
<PAGE>
Position and Position and
Name and Principal Office with First Office with
Business Address Investors Corporation Registrant
- ------------------ --------------------- ------------
Matthew Smith Vice President None
581 Main Street
Woodbridge, NJ 07095
Jeremiah J. Lyons Director None
56 Weston Avenue
Chatham, NJ 07928
Anne Condon Vice President None
581 Main Street
Woodbridge, NJ 07095
Jane W. Kruzan Director None
232 Adair Street
Decatur, GA 30030
Elizabeth Reilly Vice President None
581 Main Street
Woodbridge, NJ 07095
Robert Flanagan Vice President- None
95 Wall Street Sales Administration
New York, NY 10005
William M. Lipkus Chief Financial Officer None
581 Main Street
Woodbridge, NJ 07095
(c) Not applicable
Item 28. LOCATION OF ACCOUNTS AND RECORDS
Physical possession of the books, accounts and records of the
Registrant are held by First Investors Management Company, Inc. and its
affiliated companies, First Investors Corporation and Administrative Data
Management Corp., at their corporate headquarters, 95 Wall Street, New York, NY
10005 and administrative offices, 581 Main Street, Woodbridge, NJ 07095, except
for those maintained by the Registrant's Custodian, The Bank of New York, 48
Wall Street, New York, NY 10286.
C-6
<PAGE>
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS
Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation, Advisory Agreement and Underwriting Agreement in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions under Item 27 herein, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes to furnish a copy of its latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 66 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 16th day of November, 1998.
FIRST INVESTORS FUND
FOR INCOME, INC.
By: /s/ Glenn O. Head
----------------------
Glenn O. Head
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 66 to this Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
/s/ Glenn O. Head Principal Executive November 16, 1998
- ----------------------------- Officer and Director
Glenn O. Head
/s/ Joseph I. Benedek Principal Financial November 16, 1998
- ----------------------------- and Accounting Officer
Joseph I. Benedek
Kathryn S. Head* Director November 16, 1998
- -----------------------------
Kathryn S. Head
/s/ Larry R. Lavoie Director November 16, 1998
- -----------------------------
Larry R. Lavoie
Herbert Rubinstein* Director November 16, 1998
- -----------------------------
Herbert Rubinstein
Nancy Schaenen* Director November 16, 1998
- -----------------------------
Nancy Schaenen
C-8
<PAGE>
James M. Srygley* Director November 16, 1998
- -----------------------------
James M. Srygley
John T. Sullivan* Director November 16, 1998
- -----------------------------
John T. Sullivan
Rex R. Reed* Director November 16, 1998
- -----------------------------
Rex R. Reed
Robert F. Wentworth* Director November 16, 1998
- -----------------------------
Robert F. Wentworth
*By: /s/ Larry R. Lavoie
-------------------
Larry R. Lavoie
Attorney-in-fact
C-9
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
(a)(i) Articles of Restatement1
(ii) Articles Supplementary1
(b) Amended and Restated By-laws1
(c) Shareholders' rights are contained in (a) Articles FIFTH and
EIGHTH of Registrant's Articles of Restatement dated September
14, 1994, previously filed as Exhibit 99.B1.1 to Registrant's
Registration Statement; (b) Article FOURTH of Registrant's
Articles Supplementary to Articles of Incorporation dated
October 20, 1994, previously filed as Exhibit 99.B1.2 to
Registrant's Registration Statement and (c) Article II of
Registrant's Amended and Restated By-laws, previously filed as
Exhibit 99.B2 to Registrant's Registration Statement.
(d) Investment Advisory Agreement between Registrant and First
Investors Management Company, Inc.1
(e) Underwriting Agreement between Registrant and First Investors
Corporation.1
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between Registrant and Irving Trust
Company1
(ii) Supplement to Custodian Agreement between Registrant and The
Bank of New York1
(h)(i) Administration Agreement between Registrant, First Investors
Management Company, Inc., First Investors Corporation and
Administrative Data Management Corp.1
(ii) Schedule A to Administration Agreement2
(i) Consent of Counsel3
(j)(i) Consent of independent accountants4
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
(ii) Powers of Attorney1
(k) Financial statements omitted from prospectus - none
(l) Initial capital agreements - none
(m)(i) Amended and Restated Class A Distribution Plan1
(ii) Class B Distribution Plan1
(n) Financial Data Schedules4
(o) 18f-3 Plan1
- -------------
1 Incorporated by reference from Post-Effective Amendment No. 62 to
Registrant's Registration Statement (File No. 2-38309) filed on April 24,
1996.
2 Incorporated by reference from Post-Effective Amendment No. 64 to
Registrant's Registration Statement (File No. 2-38309) filed on May 15,
1997.
3 Incorporated by reference from Post-Effective Amendment No. 65 to
Registrant's Registration Statement (File No. 2-38309) filed on April 29,
1998.
4 To be filed by subsequent amendment.
